Quarterly tax

for paying too little, or no estimated tax during the year,

there is a penalty which can be significant.

 

IRS requires you to estimate your total tax for the year and pay as you go.

 

@rachel hairstylist  

Here is the IRS withholding estimator, which will allow you to determine if you owe money to the IRS, and therefore need to make estimates: https://www.irs.gov/individuals/tax-withholding-estimator 

 

The IRS will not charge you an underpayment penalty if: You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year, or. You owe less than $1,000 in tax after subtracting withholdings and credits.

 

Here is an article about how the penalty is calculated: https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty 

 

Here is an article the IRS published recently about the penalty rates: https://www.irs.gov/newsroom/interest-rates-remain-the-same-for-the-third-quarter-of-2023#:~:text=For%20individuals%2C%20the%20rate%20for,a%20corporate%20overpayment%20exceeding%20%2410%2C000. 

 

For individuals, the rate for overpayments and underpayments will be 7% per year, compounded daily. Here is a complete list of the new rates:

• 7% for overpayments (payments made in excess of the amount owed), 6% for corporations.
• 4.5% for the portion of a corporate overpayment exceeding $10,000.
• 7% for underpayments (taxes owed but not fully paid).
• 9% for large corporate underpayments

 

Here is a link to eftps, which you can use to make estimates electronically:  https://www.eftps.com/eftps/ 

 

Thank you,

John

CPA