2025 Estimated Tax Amounts

[elgato81]

Last year 2024 my I owed Federal $6000.

Used Turbotax Desktop.

It came up with four payments of $2300 or $9200 for Estimated 2025.

Why?

Thanks

[NCperson]

@elgato81 there should be an "estimated payments" tab.

TT should take the tax liability from this year (which is NOT the payment due), less the withholdings and if your income is over $150,000, it should use 110% of the tax liability.  

Look at Line 24 of your 2024 tax return.  That is your tax liability.   

The determination of the estimate would not include estimated payments from last year.  

You do not have to use TT's number.  if you want to use your own number for estimated payments you are welcome to do so. 

[xmasbaby0]

If you mean that your tax return printed out with four 1040ES vouchers, those vouchers were not for paying your 2024 tax due.  Those vouchers were for paying estimated 2025 quarterly tax payments to avoid a big tax bill when you file your 2025 tax return.   Those vouchers are NOT for a "payment plan" for paying the $6000 tax due as shown on your 2024 Form 1040, on line 37.   The amount of tax due shown on line 37 of your 2024 Form 1040 was due by April 15. 2025.    If you did not pay that amount in full by the filing deadline, then you are subject to owing interest on the tax owed.

[dmertz]

2025 TurboTax assumes that dollar amount of your tax withholding will remain unchanged from 2024 and calculates the amount of estimated tax payments that guarantees that you would not be subject to an underpayment penalty regardless of how much your 2025 taxable income might differ from 2024.  Because the total of the calculated 2025 estimated tax payments is greater than the balance due on your 2024 tax return, I suspect that NCperson's suggestion that your 2024 income could be high enough to trigger the 110% of 2024 tax liability threshold is a good guess.  If so, that would suggest that your 2024 tax liability was somewhere around $32,000.  (10% of $32,000 equals the difference between $6,000 and $9,200.)

A reasonable way to approach your 2025 estimated tax payments would be to pay the $2,300 for each of the first three tax quarters and then do at least a rough calculation of your 2025 tax liability by early January 2025 so that you can determine how must of a fourth-quarter estimated tax payment to make.  However, if you have not already made estimated tax payments for the first two tax quarters, the payment dates for which have already passed, you might need to either increase tax withholding from sources of income instead or, if a large proportion of your income occurs late in the year, annualize income on Schedule AI of Form 2210,  otherwise you might be subject to underpayment penalties for the first two tax quarters .

[elgato81]

We are retired and basically have no withholding. 

Tax withholding from 401K withdrawal is 20% which covers most of the liability.

However this withholding will not occur until December. I realize that I could increase the percentage but even

if it covers the full tax amount the IRS is still expecting the quarterly payments?

I expect the owed amount to be the same $6000 this year or $1500 per quarter.

I would like to use the Turbotax vouchers but they are for $2300.

Thank you for the response.

[NCperson]

@elgato81 you can simply cross out the $2300 and use $1500, or whatever number you prefer. 

Unless you tell the IRS differently (by completing form 2210ai), the IRS presumes your income (and the related withholdings) are received evenly throughout the year and therefore, any tax due is due throughout the year, which means quarterly.  

It can be a complicated topic and look at form 2210 for more informaetion. 

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

p.s. how could the 20% withholding cover "most of the liability": if you owed over $6,000?  it may cover most of the liability on the 401k withdrawal, but not the total liability due to the IRS. 

[Hal_Al]

You do not need to do quarterly estimated payments, at all.

This is because "withholding" (but not estimated quarterly payments) is considered as withheld equally throughout the year. So, your lump sum withholding, in December, is probably the only tax payment you need to make during the year.  If 20% doesn't come to $6000*, you can ask your 401k administrator to withhold the full $6000.

*This assumes $6000 was your tax liability (line 24 of form 1040), not your balance due (line 37).

[EDIT] If your liability is more, you can still have the 401k withhold the full amount (your 2024 line 24).

[dmertz]

Hal_Al, $6,000 had to be the balance due.  If tax liability for 2024 had been only $6,000, TurboTax could not possibly have suggested a quarterly estimated tax payment of $2,300.

[NCperson]

@elgato81 you can make this simpler.

1) Take Line 24 of form 1040 on your 2024 tax return.  That is your tax liability.

2) and subtract Line 25d. That is your withholdings.

divide the result by 4.  All things being the same in 2025 as they were in 2024, THAT will cover the Amount Due if you pay that amount quarterly.

HOWEVER, the problem is the payments are due April 14, 2025; June 15, 2025; Sept 15, 2025 and January 15, 2026.  The first two payments are already past due and will drive an under payment penalty comes next April.  Best to make those first two payments TODAY which will cut off the underpayment penalties.

[elgato81]

Thank You.

I plan to do an annual 401K withdrawal. I prefer to do it in December so it can keep drawing interest until then.

If I set the withholding percentage high enough to cover my entire 2025 tax liability, can I ignore the quarterly payments?  This would not occur until December so it would appear that I was not meeting quarterly requirements.

Or, I could do the withdrawal now with a high withholding percentage?

[NCperson · Accepted solution]

@elgato81 if you set the withholdings high enough IN DECEMBER, that would avoid the under-payment penalty.   The way the form works, the IRS gives you credit for the withholdings (but not the estimated payments) as if they occured evenly over the course of the year. 

The tax liability (line 24 for 2025 which you would have to estimate since you don't know that yet ) less the withholding would need to be less than $1000 remaining to be paid. 

[dmertz]

"If I set the withholding percentage high enough to cover my entire 2025 tax liability, can I ignore the quarterly payments?"

Yes.  Unlike estimated tax payments that are credited when actually paid, tax withholding is by default treated as paid evenly throughout the year.  That's why tax withheld late in the year can make up for what would otherwise be underpayment earlier in the year.