estimated taxes

[pa210]

In 2023 made estimated taxes of $4000; $1000 per Quarter which more than covered the taxes due and we got a refund? This year it looks like we will exceed what we made last year.  What are my options so we do not get a penalty?  I did increase estimated to $1100 per quarter but will be short several hundred possibly by year end.

[evelynm]

Here is a link to tax caster to assist in calculating your Federal Tax:   https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

You can then adjust your quarterly payments accordingly.

The IRS also offers two "safe harbor" methods for determining whether you are subject to a penalty. If you meet one of these safe harbor amounts, the IRS won't charge an estimated tax penalty, even if you owe more than $1,000 at the end of the year.

The requirements are that you pay:

• 90% of the tax you owe for the current year. Estimate what you'll owe and pay at least 90% of this amount by making timely quarterly estimated tax payments or through paycheck withholding.
• 100% (or 110%) of last year's tax bill. Pay 100% of the tax shown on your prior-year tax return before applying estimated payments, withholding, or refundable tax credits. If your adjusted gross income is more than $150,000 (or $75,000 if you're married and file a separate return from your spouse), the safe harbor is 110% of your prior-year tax.

IRS tax penalties - how to avoid them 

[pa210]

Thanks for info.  So it looks like we meet the Safe Harbor clause since this year I will apply Quarterly payments of $1100 times 4 which = $4400 which exceeds the $4000 we paid last year? So no penalty? Please let me know if I am not correct.

If in 3 mo. I find that we are most likely going to exceed what we anticipated making does it make sense to increase last two quarterly payments?  Your thoughts on best ways to handle?  Thanks again.

[evelynm]

The penalties are based on your total tax liability not your estimated tax voucher amounts.   I agree with increasing the vouchers accordingly so you do not have any surprises.   You can use the Tax Caster throughout the year.

To determine whether you need to make quarterly estimates, answer these questions:

1. Will you owe less than $1,000 in taxes for the tax year after subtracting your federal income tax withholding (including estimated tax payments made) from the total amount of tax you expect to owe this year? If so, you're safe—you don't need to make estimated tax payments.
2. Do you expect your federal income tax withholding (including estimated tax payments made) to amount to at least 90 percent of the total tax that you will owe for this tax year? If so, then you're in the clear, and you don't need to make estimated tax payments.
3. Do you expect that your income tax withholding (including estimated tax payments made) will be at least 100 percent of the total tax on your previous year's return? Or, if your adjusted gross income (2023 Form 1040, line 11) on your tax return was over $150,000 ($75,000 if you're married and file separately), do you expect that your income tax withholding will be at least 110 percent of the total tax for the previous year? If so, then you're not required to make estimated tax payments.

If you answered "no" to all of these questions, you must make estimated tax payments using Form 1040-ES. To avoid a penalty, your total tax payments (estimated taxes plus withholding) during the year must satisfy one of the requirements we just covered.