Do you have to pay estimated taxes on oil and gas royalties?

[sharlafriedrichs]

I am being charged an underpayment penalty for this income in 2024 but wasn't charged a penalty in 2023.

[MayaD]

Yes.  Estimated tax is the method used to pay tax on income that is not subject to withholding

You can avoid this penalty if you either owe less than $1,000 in tax after subtracting your withholding and refundable credits, or if you paid withholding and estimated tax of 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.

For more information check the IRS link.

[sharlafriedrichs]

Thank you for your response.  Is this new for Oil & Gas royalties?  I wasn't charged a penalty last year and the income was about the same.

[DianeW777]

No, it's not new. If the income is low enough that little to no change is calculated in your tax liability each year, then you shouldn't need estimated tax payments just for that income. The key is to eliminate any tax penalty for underpayment, so if you have not had one and do not have one for 2024, there is nothing to be concerned about.

If you should happen to have an extra amount of income in any category, then you might consider checking your tax situation at that time. The IRS system is pay as you go, so when you make money, they want the tax dollars.

@sharlafriedrichs