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We pay estimated taxes to avoid underpayment penalties.  In order to avoid underpayment penalties, a taxpayer must meet a certain criteria, see this IRS link, unless your total federal tax liability is less than a thousand dollars.  The IRS also allows taxpayers to pay estimated taxes based on when the income is received, for those whose income aren't earned evenly during the year.  There are special rules for farmers and fishermen.

 

Underpayment of estimated tax by individuals penalty | Internal Revenue Service

Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year. The Underpayment of Estimated Tax by Individuals Penalty applies to individuals, estates and trust that don't pay enough estimated tax on their income or you pay it late.

There are two ways to pay tax:

  • Withholding from your pay, your pension or certain government payments, such as Social Security.
  • Making quarterly estimated tax payments during the year. Estimated tax payments are generally due as follows:
    • Jan. 1 to March 31–April 15
    • April 1 to May 31–June 15
    • June 1 to Aug. 31-Sept. 15
    • Sept. 1 to Dec. 31–Jan. 15 of the following year

Avoid a penalty

You may avoid the Underpayment of Estimated Tax by Individuals Penalty if:

  • Your filed tax return shows you owe less than $1,000 or
  • You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less. If your adjusted gross income (AGI) for 2023 was more than $150,000 ($75,000 if your filing status for 2024 is married filing separately), substitute 110% for 100%.

The IRS urges taxpayers to check into their options to avoid these penalties.

  • Check your withholding often and adjust it when your situation changes. To do this fill out a new Form W-4 and give it to your employer. The Tax Withholding Estimator is a helpful tool.
  • Estimated tax is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.). Use Form 1040-ES to figure and pay estimated taxes on time.