The IRS requires that you pay the taxes you owe throughout the year. This is done either through witholdings from your earnings or by the payment of estimated taxes (using estimated payment vouchers). These estimated taxes are to be paid quarterly (April 15th, June 15th, September 15th, and January 15th). Estimated taxes are generally paid by taxpayers who receive their income from sources other than salaries and wages, such as a sole proprietors, partner, S corporation shareholders and/or a self-employed individual.
Am I required to pay Estimated Taxes?
The general rule is that you will pay estimated tax for the current tax year if both of the following apply:
- You expect to owe at least $1,000 in tax for the current tax year after subtracting your witholdings and credits.
- You expect your withholding and credits to be less than the smaller of
- 90% of the tax to be shown on your current tax return, OR
- 100% of the tax shown on your prior year tax return. Your prior year tax return must cover all 12 months.
Will I be penalized if I do not pay estimated taxes?
In general, you may owe a penalty for the current tax year if the total of your witholdings and timely estimated payments did not equal at least the smaller of the above amounts. Penalties may also apply if you are late paying any estimated tax payments.
Is there an exception?
File Form 2210 for Federal penalties. The taxpayer should not owe underpayment penalties if he is a U.S. citizen or resident and did not owe taxes for the previous year’s return that covered 12 months.
How do I calculate the amount I have to pay?
Within our program, the amount will be calculated for you. However, you will need to provide us with the following information:
- Tax on last year's return
- Date of your tax payment for current year
Higher Income Taxpayers
If your adjusted gross income (AGI) for the prior year was more than $150,000 ($75,000 if your filing status is married filing separately), substitute 110% for 100% in the criteria outlined above. This rule does not apply to farmers or fishermen.
Penalty figured separately for each required payment
You may incur more than one penalty, as the penalty is figured separately for each installment due date. Therefore, you may owe a penalty for an earlier due date even if you paid enough tax later to make up the underpayment (because even though you “caught up” on what you owed, you are still penalized for missing the payment when it was due). This is true even if you are due a refund when you file your tax return. However, you may be able to reduce or eliminate the penalty by using the annualized income installment method. For further instructions see Pub. 505- Tax Withholding and Estimated Tax.
Not sure if you need to file Form 2210?
Complete the form and we will determine if you are subject to penalty. The penalty (if any) will be located on the 1040 form.
Where do I complete the 2210 form?
If you do need to file Form 2210 you can find the form within the program by going to:
- Federal Section
- Payments and Estimates
- Underpayment of Estimated Tax - Form 2210