It depends. If your payment of estimated tax to the IRS was all in the fourth quarter, then a penalty will exist. If you make only one payment in the last quarter of the year and your income was received evenly throughout the year there will be a penalty.
The IRS tax system is pay as you go, so when you receive taxable income you may be required to pay estimated tax to cover.
There is an annualized method available if you received most of your income in the last quarter.
Generally, you can avoid the penalty if your total timely estimated payments and withholdings are greater than or equal to the lesser of:
- 90% of the total tax after credits for the current year, or
- 100% of the total tax after credits in the prior year
- See one exception below.
You can also avoid the penalty if the amount you owe is less than $1,000 as long as any estimated tax payments you made are timely.
Note: High-income taxpayers. If your adjusted gross income (line 11 of your 2023 Form 1040) is greater than $150,000 (or $75,000 if you're married and file a separate return from your spouse), you can avoid a penalty by paying at least 110% of your total tax from the prior year.
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