state tax withholdings

[user17610548198]

I have the option of not having any state taxes withheld from my pension so I stopped the state withholdings and am not putting $400 a month in savings in anticipation of having a possible federal bill at the end of the year. Should I instead be making prepayments to the IRS? Last year I ended up owing an additional $1700 in fed taxes and had it taken from the surplus from my state withholdings. If I should be making prepayments because my liability last year was over $1000, can I do catchup in this 4th Q of 2025 without any penalty for underpayment during the year?

[Loretta P]

As I understand you stopped state withholding and are putting that money aside to pay any possible federal tax due.  

The IRS uses a pay-as-you-go income tax system, meaning you must pay your taxes as you earn income. It enforces this by charging penalties for underpayment. You get them if you haven't paid enough income taxes through withholding or making quarterly payments. It also charges penalties on late payments even if you end up getting a refund.

The IRS uses a couple of rules to determine if you need to make quarterly estimated tax payments:

• You expect to owe more than $1,000 after subtracting withholding and tax credits when filing your return, or
• You expect your withholding and tax credits to be less than:
  • 90% of your estimated tax liability for the current tax year
  • 100% of the previous year's tax liability, assuming it covers all 12 months of the calendar year

For tax year 2025, the following payment dates apply for avoiding penalties:

• 1st Quarterly Estimated Tax Payment April 15, 2025
• 2nd Quarterly Estimated Tax Payment June 16, 2025
• 3rd Quarterly Estimated Tax Payment September 15, 2025
• 4th Quarterly Estimated Tax Payment January 15, 2026

Helpful Links:

Estimated taxes 

A Guide to Paying Quarterly Taxes 

Estimated Taxes: How to Determine What to Pay and When