Does Turbotax have a way to estimate estimated tax payments based on uneven income? I had to liquidate my company stock whose gain was 3x my income.How to avoid penalty?

[SZEDX Tg3eq45trhgadvcgb]

I had huge LT CG in May and a severance in June. It's my understanding that I need to pay the tax on the quarter ending in May (paid June 15) for the capital gain and then the next quarter I need to pay taxes on the severance (Sept. 15). I don't expect income the rest of the year except interest. Can I spread it out over 3 payments or do I have to pay most of it at once?

[Mike9241]

There are two safe harbors, meaning that if you meet either, you can't be penalized for failure to pay 100% of your 2025 taxes.

1)  withholding is 90% or more of your 2025 tax. With the possibility of substantial tax law changes, there is no way to know what this would be. 

2) withholding is 100% or more of your 2024 tax. This rises to 110% or more if your 2024 adjusted gross income was $150,000 or more. You can always pay in more, so there isn't a big tax bill come 4/15/2026

withholding is better than estimated tax payments because there are two options for how to handle withholding for penalty purposes

a) the default is that 1/4 of the year's total is deemed paid each period, regardless of when actually withheld

b)  you can use actual withholding for each period

on the other hand, estimates only count for the period in which they were made

you also have the option of using the 2210's annualized installment method to calculate what needs to be paid in for each period. however, with possible substantial changes in the tax laws for 2025, that haven't yet been passed, this method is currently a crap shoot. 

[SZEDX Tg3eq45trhgadvcgb]

Thanks for the input.    Because I have earned 95% of my income already this year and now unemployed / early retired I will not have any further witholding.    I believe I need to use the  Annualized Income method  (AIM) to calculate my tax liability based on the income I've actually received up to the end of each payment period otherwise I may face a penalty for underpayment if I spread it evenly over the next 3 estimated payments.  Turbotax doesn't seem to have anything except the estimator that allows me to pay in 3 installments which I would certainly prefer to do but I don't want to get penalized either.     The annualized estimated tax worksheet is in publication 505.  Publication 505 (2025), Tax Withholding and Estimated Tax | Internal Revenue Service

[baldietax]

If you've had a significant increase in income for 2025 between the combination of these events, then paying estimated tax based on prior year tax is probably going to be advantageous for your situation (and simplest).  If you pay that in 4 quarterly installments this would avoid penalty regardless of how much or when your 2025 income occurs.  But now it's June so if you didn't pay any Q1 ES then you need to pay 50% in Q2 (by Monday 6/16) to minimize the penalty (you'll still have some penalty on Q1 ES payment only for a few months).

When you did your 2024 return TT would have produced ES vouchers by default based on prior year tax but be careful here those vouchers assume your withholding for 2025 is the same as 2024 which sounds like not the case so your actual ES payments using this method will be higher than the ES vouchers calculated when you filed your 2024 taxes (ES = safe harbor amount minus withholding).

I see your comments about "3 installments" not sure where that is coming from but caution here, if not using AI method then you need to pay ES quarterly whether it's based on prior year or current tax to meet 25% by Q1, 50% by Q2, 75% by Q3, 100% by Q4.  If you missed Q1 and split it into 3 installments for the rest of the year you will pay 33% by Q2 (underpaid), 66% by Q3 (still underpaid), 100% by Q4 (finally caught up).  The sooner you catch up the missing 25% from Q1 the sooner the penalty stops accruing.

If you plan to use the AI method then I think the ES needs to line up with the income by quarter, you would basically have to pay 90% of your tax now in Q2 if you are saying you already earned most of your income by now.  This is tax you could be earning interest on if you make quarterly payments, even with some penalty for Q1.  AI method is certainly advantageous if you have a large unplanned income even later in the year and need to make a large one-off ES payment in December say.  Check the math but not sure it helps you when the income is all in Q1-2.  Whether AI is worth the extra calculations and filing bother also depends how much tax and penalty you are talking about.  I think you need to figure out your safe harbor amount and quarterly payment/penalty options before going the AI route.

If you have desktop TT you can run an estimate for 2025 using the 2024 software (as a new return, nothing to do with your actual 2024 return) - allowing for some differences in deduction limits or tax tables, but it gets close enough.  You would need to get your 2024 AGI/tax into TT as "2023" as you can't carry over a return in this case (it asks for this in Other Tax Situations / Underpayment Penalty).  You can then run thru different ES and penalty scenarios and run through AI method calculations also.

Not a CPA just a few thoughts based on what you described, hope this helps.

[SZEDX Tg3eq45trhgadvcgb]

Thanks.   My withholdings to this point from my W4 and deducted from my severance are more than 25% of the total expected bill so there shouldn’t be any penalties as I just got the stock windfall just 3 weeks ago.   The severance only got paid about 1 week ago,  which would be the next quarter due in Sept.  If I do somehow underpay the penalty is a no go as the penalty  interest rate is 7 or  maybe 8% so that’s not worth it.  I can easily get 4% but not a guaranteed 8%.   TurboTax already calculated the estimated final 3 payments but again if I don’t pay a commensurate tax on this big income (20 years of stock ownership and 6x my normal salary) for this quarter I don’t think I can do the quarterly estimated payments that TurboTax suggests without a penalty.  TurboTax is not equipped to handle uneven income for the purposes of tax estimation.  I get the feeling that if I do the final 3 estimated payments I might be fine with no penalty but documentation seems to indicate otherwise. 

[baldietax]

Ok without knowing the numbers but if your 2025 income is 6x what it was in 2024 then I would think you can safely pay quarterly ES based on your 2024 tax (ie 100% of 2024 tax, or 110% if 2024 AGI > 150k depending filing status), take a bit of penalty on Q1, and earn 4% interest on the rest you owe til Apr 2026.

Lines 1-9 of Form 2210 give the safe harbor calc.

the annual penalty rate is 8% but it’s a quarterly calculation and in this scenario the penalty on Q1 miss that is caught up in Q2 is only on a quarter of your total ES and only for about a quarter of the year ie 8% x 0.25 x 0.25 x total ES (approx).