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just to add an example to show better the penalty effects, I set up a dummy return with W2 for 75k and withholding of 8k, then added a 1099-MISC for 25k which triggered SE tax etc, the end result was $16984 tax due, of which 90% = 15,286, so the min required tax per quarter is 1/4 of that = $3822. The 8k withholding is spread across the year 2k/qtr. The required minimum additional ES due is $7286, or $1822/qtr.
3 different outcomes shown below:
- Not paying any ES results in $367 penalty.
- Paying the full ES $7,286 in Q2 brings the penalty down to $24 due to the $1822 underpayment in Q1.
- Paying the ES quarterly in Q2-4 with $3644 (half) in Q2, $1822 in Q3, $1822 in Q4 gives the same outcome, penalty $24.
The only way to eliminate the $24 is to go through the annualized income method. You can decide whether or not to do this when you file (in TT, "Other Tax Situations > Underpayment Penalty") as long as you paid the ES you would have eliminated most of the penalty.
