How to pay underpayment quarterly to avoid a penalty fee and due taxes

[bluedeb · Accepted solution]

You can make estimated tax payments.  

If you’re at risk for an underpayment penalty next year, we'll automatically calculate quarterly estimated tax payments and prepare vouchers (Form 1040-ES) for you to print. You're not required to make estimated tax payments; we're just suggesting it based on the info in your return. If you feel they're not needed for next year's taxes, you can shred them.

If you want to add these forms to your return yourself, follow these instructions.

Mail your payment along with the corresponding 1040-ES voucher to the IRS address listed on the voucher. Quarterly payment due dates are printed on each voucher.

Additional estimated tax payment options, including direct debit, credit card, cash, and wire transfer, are available at the IRS Payment website.

You also have the option when you file your return to apply some or all of your refund to your estimated tax payments for the coming tax year.

[Mike9241]

THE RULES

There will be no federal penalties for not paying in enough taxes during the year if

1) withholding and timely estimated tax payments equal or exceed 90% of your 2023 tax or

2) withholding and timely estimated tax payments equal or exceed 100% of your 2022 tax (110% if your 2022 adjusted gross income was more than $150K) or

3) the balance due after subtracting taxes withheld from 90% of your 2023 tax is less than $1,000 or

4) your total taxes are less than $1,000

the lower of 1 or 2 is your required annual income tax payments. 1 is difficult to know until the year end so generally option 2 is the safer option. under the simplified method 25% of the estimate taxes must be paid in each quarter by 4/18, 6/15, 9/15 and 1/15/24.  unless you can show otherwise 25% of you annual withholding is assume to occur in each  quarter. 

failing this and being subject to penalties you can use the annualized installment income method. 

this method requires knowing your income and deductions thru 3/31, then 5/31, then 8/31, and then 12/31  which should be the same as the tax return. the income is annualized. taxes are computed on the annualized income and then de-annualized. your tax payments for each period must equal or exceed these amounts to avoid penalties.

if you can increase withholding to meet any exception then paying the estimates is not required. 

form 2210 page 3

https://www.irs.gov/pub/irs-pdf/f2210.pdf   

state laws vary