State Tax: Estimated Payments & Underpayment Penalties

Do I Need to Make State Estimated Tax Payments to Avoid Underpayment Penalties?

You may be required to make state estimated tax payments if any of the following apply:

• You receive income not subject to state withholding (e.g., self-employment, rental, or investment income).
• Your wages have insufficient withholding to cover your total state tax liability.
• Your expected tax liability exceeds the threshold set by your state.

Each state has its own rules and thresholds for when estimated payments are required. Failing to make timely estimated payments may result in interest and underpayment penalties.

States Requiring Estimated Tax Payments at Specific Thresholds

States with special instructions:

• Hawaii: You may owe a penalty for 2024 if your total withholding and timely estimated payments are less than the lesser of:
  • 60% of your 2023 tax, or
  • 100% of the tax shown on your 2023 return.
• Louisiana: You must make estimated payments if your estimated Louisiana income tax (after credits and withholding) exceeds:
  • $1,000 for single filers, or
  • $2,000 for joint filers (per Louisiana Revised Statute 47:116).
• New Jersey: Estimated payments are required if:
  • Your total tax liability exceeds $400 (after subtracting withholdings and credits), and
  • You did not pay at least 80% of your tax liability through withholding or estimated payments.
• Pennsylvania: You may be subject to penalties if:
  1. You received more than $9,500 in taxable income not subject to PA withholding,
  2. Your credits do not fully offset the tax due on that income, and
  3. You did not make timely estimated payments to cover the difference.
• Utah: Quarterly estimated payments are not required. However, penalties may apply for:
  • Late filing, or
  • Late payment of taxes due.
  • You can prepay taxes online or by mail at any time.
• Virginia: You must make estimated payments or adjust your withholding if:
  • You are required to file a Virginia return, and
  • Your expected tax liability (after withholding and credits) exceeds $150.

Will I be assessed an Underpayment Penalty?

It is possible that you will be charged an underpayment penalty if you did not pay enough taxes throughout the year.

What Is a State Underpayment Penalty?

A state underpayment penalty is a fee charged by a state tax authority when a taxpayer fails to pay enough estimated taxes throughout the year. This typically applies to:

• Self-employed individuals
• Taxpayers with significant non-wage income (e.g., investments, rental income)
• Those who don’t have enough tax withheld from their paychecks

When Do States Assess Underpayment Penalties?

Most states follow rules similar to the IRS, assessing penalties if:

• You didn’t pay at least 90% of your current year’s tax liability, or
• You didn’t pay 100% of the prior year’s tax liability (110% for higher incomes in some states)
• These payments can be made through:
  • Withholding from wages
  • Quarterly estimated tax payments

How Are Penalties Calculated?

Penalties are generally based on:

• The amount underpaid
• The length of time the payment was late
• An interest rate set by the state (often tied to the federal rate)

Each state has its own formula and interest rate, so the exact amount can vary.

How to Report or Claim Underpayment on Your State Tax Return

1. Use the State’s Underpayment Form -
   Most states have a specific form (e.g., CA Form 5805, NY Form IT-2105.9) to calculate and report underpayment penalties.

2. Attach the Form to Your Return
   If you owe a penalty, include the form with your state income tax return.

3. Request a Waiver (if applicable)
   You may be able to request a waiver if:

   • You had a reasonable cause (e.g., illness, disaster)
   • You retired or became disabled during the year
   • Your income was uneven throughout the year

Tips to Avoid Future Penalties

• Adjust your withholding or make quarterly estimated payments
• Use your state’s online tax estimator to check your payment status