Safe Harbor With Holding Penalty When You File with an Extension

[glerbnik84]

I know that the IRS gives you safe harbor from the under withholding penalty if you paid at least 100% of the tax owed in the prior year or 90% of the tax owed in the current year.  Do these exceptions also apply if you will be requesting an extension and filing later? 

I know that my withholding for the 2023 tax year is at least 100% of what I owed for the 2022 tax year.  I will be requesting an extension and filing later because I am waiting for a form K-1 from the executor of my sibling's estate.  Since my with holding meets the 100% requirement will I have no penalty due if my with holding did not cover what I owe for 2023, and I have to make an additional payment when I file the return after April 15th but before the October deadline?

[JohnB5677 · Accepted solution]

You must make a payment by April 15th that will bring you up to 90% of your current years (2023) taxes.

• The 100% of your previous year (2022) will cover you up to April 15th.
• After April 15th the other rules kick in.
• Please see this article on Filing an Income Tax Extension, see the section on Need to use a credit card to pay taxes owed?

[glerbnik84]

Thank you!! 

[Mike9241]

that 100% is 110% if your 2022 adjusted gross income was over $150k (1/2 that if married filing separate). taxes are due  on 4/15.so you would be safe from underpayment penalties if you meet the safe harbor tests. However, any balance owed and not paid by 4/15 is subject to late payment penalties and interest, 

[glerbnik84]

Thank you!

[glerbnik84]

I assumed that I would have been required to make the payment by the 16th of January, 2024 (last date for estimated payments for 2023).  I'm glad there is still time.  I always make sure to withhold 100% of what I owed in the previous year.  However, I am in a jam this year:  I have to file late because I am awaiting a k-1 from a family member's estate, and did not withhold at least 90% of what I'll owe for this year.

 I went to the link in your reply and read this:

• If the IRS thinks your estimate of the amount of tax you owe is unreasonable, it may disallow your extension and assess a late-filing penalty.

I wonder how they decide what is unreasonable?

[RobertB4444]

Unreasonable is really the "you should have known better" rule.  If you get a windfall of $80,000 right at the end of the year and don't pay any extra taxes in then you're going to owe a bunch, right?  Because you should have known better.  

From everything that you have entered it sounds like your estimates have been very reasonable.

@glerbnik84