In short
Individuals whose tax isn't covered by withholding pay estimated tax in four installments, due April 15, June 15, September 15 and January 15. An underpayment penalty applies if too little is paid on time.
Key takeaways
- No penalty applies if the tax owed after withholding is under $1,000.
- Safe harbors: pay at least 90% of this year's tax or 100% of last year's (110% if last year's adjusted gross income exceeded $150,000).
- Withholding is treated as paid evenly through the year, whenever it actually occurred.
Where it's tested
REG: Federal Tax Procedures & Penalties — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A taxpayer's prior-year AGI was $250,000 with a tax liability of $50,000. To avoid an underpayment penalty for the current year using the prior-year safe harbor, how much must the taxpayer pay in through withholding and estimates?