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car110
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Quarterly payments

Is it mandatory to have to pay quarterly payments 

 

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2 Replies

Quarterly payments

No, quarterly payments are not mandatory.   But if you expect to owe at least $1000 at tax time next year, making estimated quarterly payments can help you avoid a big tax bill and/or an underpayment penalty.   If your return printed out those four 1040ES vouchers for quarterly payments, they are optional.  The IRS does not require you to use them.

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**

Quarterly payments

to avoid penalty you need pay thru withholding or timely (usually quarterly) est tax, the smaller of either - 100% of your prior year tax (110% if AGI > 150k or 75k if MFS), or 90% of your current year tax.  See Form 2210 lines 1-9 for this 'safe harbor' calculation.

 

If you filed 2024 with TT it would have generated by default ES vouchers for 2025, based on 100/110% of 2024 tax, less withholding which is assumed to be the same for 2025 as 2024. This default method can often be an overestimate of what you need to pay esp if 110% for high AGI, unless you have a significant jump in income for 2025 due to Roth conversion, gap gain etc in which case it can be advantageous to pay ES based on prior year tax.

 

IRS by default assumes your income and withholding occurs evenly thru the year (by quarter, divided by 4) even if it doesn't, but ES payments have specific dates and need to be paid quarterly to line up with it.  You can also pay one-off ES especially if you have a big income event later in the year, but then you need to file Form 2210 Annualized Income method to show the uneven timing of the income per quarter and the tax payments or you'll get an underpayment penalty for earlier quarters - even if you meet the total amount needed for the year or have a refund, the penalty calculation is assessed quarterly.

 

At this point we are into Q3 so if you missed quarterly payments for Q1-2 that you needed to pay that will be accruing penalty but you can limit the penalty to only a few months by catching up the payments.  Alternatively you can increase W2 withholding but only 6 months left to adjust for that.

 

It all depends your situation, first thing to do is to figure our what your safe harbor amount of tax you need to pay is, and estimate withholding against that for 2025 to see whether you have a significant gap.

 

for more info see https://www.irs.gov/faqs/estimated-tax or https://www.irs.gov/pub/irs-pdf/i2210.pdf

 

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