Safe Harbor Rules For Estimated Taxes

[Romper]

Could someone clarify The Safe Harbor Rules?

Example

One pays 110% of the prior year's tax payment by year end.

What If?

What if the prior year's tax payment was $5,000.

What if this years income will be much higher and the tax due will be $50,000.

It seems there must be a limit on using a prior year's tax payment which was far lower then this year's payment will be.

Is there a rule or limit?

What am I missing?

Thanks in advance. 

[VolvoGirl]

It’s not on the tax payment but the prior year tax liability.   If you do get a penalty on your tax return,  You might be able to eliminate it or at least reduce it.  You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

[Romper]

Thanks for the quick response

A am aware of the options to eliminate a penalty but I think the question remains.

I.e. Is there a rule or limit to paying the tax liability for the prior year when there is such a wide difference in the tax due for the current year?

[rjs · Accepted solution]

There is no limit on eliminating the penalty by paying 110% of last year's tax. It doesn't matter how much higher your income is this year, or how much more tax you will have to pay.

[Romper]

Thanks Champ...

I guess that explains why I couldn't find a rule.

[walnutgrove58]

This doesn't seem to be how turbotax handles this. I paid OVER 110% of the 2023 tax liability amount through withholding and estimates in 2024, and TT is assessing me underpayment. is there a way to correct this?

[KeshaH]

Did you enter the 2023 liability in TurboTax or make sure the amount entered was correct?

If you're using the TurboTax Desktop program you can review Form 2210 to see how the amount is calculating.

If you'd like, we can look at your return and see exactly what you see to help come to a resolution. The return will be scrubbed and won't include any of your personal details.

If you're using TurboTax Online:

Once you're logged in to your account and have your amended return open,

- on the left hand panel, click on Tax Tools and then choose Tools

- on the pop up window, select Share my file with Agent

- you'll see a message saying you'll give us a copy of your tax return. Your personal information will be changed so we can't see any private information.

- click okay and you'll get another message with a token

If you're using TurboTax Desktop:

• Click on Online in the top menu of TurboTax Desktop for Windows
• Select 'Send Tax File to Agent'
• Write down or send an image of your token number and state then place in this issue.
• We can then review your exact scenario for a solution

Please reply to this message with your token so that we can further assist you. Let us know all other states that are included on the return.

[baldietax]

did you pay estimated tax evenly and on time each quarter, or was some of it paid later in the year?  You can meet the safe harbor amount in total or exceed it, but still get underpayment penalty for quarters earlier in the year if you didn't meet 1/4th of the safe harbor amount each quarter.