Hi berylttax!
The IRS required that estimated taxes are paid as you earn or receive income during the year. If the amount of income tax paid or withheld is not enough, you may need to make estimated taxes. If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return. The key is that the payments are made timely and regularly. If you receive unequal amounts of income during the year to cause fluctuation in the taxes due, you could fall into this situation.
You don’t have to pay estimated tax for the current year if you meet all three of the following conditions.
- You had no tax liability for the prior year
- You were a U.S. citizen or resident for the whole year
- Your prior tax year covered a 12-month period
Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
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