the rules to avoid federal penalties for underpayment of tax liability for 2025
Withholding and
1) timely estimated tax payments equal or exceed 90% of your 2025 tax or
2) timely estimated tax payments equal or exceed 100% of your 2024 tax (110% if your 2024 adjusted gross income was more than $150K) or
3) the balance due after subtracting taxes withheld from 90% of your 2025 tax is less than $1,000 or
4) your total taxes are less than $1,000
the lower of 1 or 2 is your required annual income tax payments. 1 is difficult to know until the year's end so generally option 2 is the safer option. under the simplified method for estimated tax penalties, 25% of the estimated taxes must be paid in each quarter by 4/15, 6/15, 9/15, and 1/15/ of the following year. unless you can show otherwise 25% of your annual withholding is assumed to occur in each quarter.
failing this and being subject to penalties you can use the annualized installment income method.
if you increase withholding to meet any exception then paying estimates is not required.
form 2210 page 3
https://www.irs.gov/pub/irs-pdf/f2210.pdf
state laws vary
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some taxpayers, for various reasons, like to receive a large refund so they pay more than required. However, in reality, they are making an interest free loan to the government.
