![]() You need to come up with a good estimate of the income and deductions you will report on your federal tax return. TurboTax Tip: If you expect your income this year to be less than last year and you don't want to pay more taxes than you think you will owe at year end, you can choose to pay 90 percent of your estimated current year tax bill rather than 100 percent (or 110 percent depending on AGI) of your prior year tax bill. If you expect your income this year to be more than your income last year and you don't want to end up owing any taxes when you file your return, then make enough estimated tax payments to pay 100 percent of your current year income tax liability. So you may want to avoid cutting your payments too close to the 90 percent mark to give yourself a safety net. If the total of your estimated payments and withholding add up to less than 90 percent of what you owe, you may face an underpayment penalty. If you expect your income this year to be less than last year and you don't want to pay more taxes than you think you will owe at year end, you can choose to pay 90 percent of your current year tax bill. If you satisfy this test, you won't have to pay an estimated tax penalty, no matter how much tax you owe with your tax return. ![]() The safest option to avoid an underpayment penalty is to aim for "100 percent of your previous year's taxes." If your previous year's adjusted gross income was more than $150,000 (or $75,000 for those who are married and filing separate returns last year), you will have to pay in 110 percent of your previous year's taxes to satisfy the "safe-harbor" requirement. To avoid a penalty, your total tax payments (estimated taxes plus withholding) during the year must satisfy one of the requirements we just covered. If you answered "no" to all of these questions, you must make estimated tax payments using Form 1040-ES. Do you expect that your income tax withholding will be at least 100 percent of the total tax on your previous year's return? Or, if your adjusted gross income (2022 Form 1040, line 11) on your tax return was over $150,000 ($75,000 if you're married and file separately), do you expect that your income tax withholding will be at least 110 percent of the total tax for the previous year? If so, then you're not required to make estimated tax payments.Do you expect your federal income tax withholding to amount to at least 90 percent of the total tax that you will owe for this tax year? If so, then you're in the clear, and you don't need to make estimated tax payments.Will you owe less than $1,000 in taxes for the tax year after subtracting your federal income tax withholding from the total amount of tax you expect to owe this year? If so, you're safe-you don't need to make estimated tax payments.To determine whether you need to make quarterly estimates, answer these questions: If at filing time, you have not paid enough income taxes through withholding or quarterly estimated payments, you may have to pay a penalty for underpayment. The rule is that you must pay your taxes as you go throughout the year through withholding or making estimated tax payments. Gains from sales of stock or other assets.You may owe estimated taxes if you receive income that isn't subject to withholding, such as: And, if you're like most wage earners, you get a nice refund at tax time.īut if you are self-employed, or if you have income other than your employment wages, you may need to pay estimated taxes each quarter. This way you pay your income taxes as you go. If you're an employee, your employer typically withholds taxes from every paycheck and sends the money to the IRS, and probably to your state government as well. If you don't calculate and pay your first estimated payment until after April 15, when the first quarterly payment is typically due, then you will need to make your payments as soon as you can to “catch up" but you might still have a penalty.If your federal income tax withholding (plus any timely estimated taxes you paid) amounts to at least 90 percent of the total tax that you will owe for this tax year, or at least 100 percent of the total tax on your previous year's return (110 percent for AGIs greater than $75,000 for single and separate filers and $150,000 for married filing joint), you most likely will not need to make estimated tax payments.If you expect to owe more than $1,000 in federal taxes for the tax year, you may need to make estimated quarterly tax payments using Form 1040-ES, or else face a penalty for underpayment.
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