quarterly payments

[jenny217]

Hi! I know that you get dinged for underpayment if you don't pay quarterly taxes at all on 1099 income in during the quarterly deadlines (and instead pay it all at tax time). But most of my 1099 income always comes in Q4. So, I'm I penalized for not anticipating 1099 income and thus paying nothing during the first three quarterly cycles, and only paying during the final (January) payment cycle? Is the penalty triggered by overall underpayment or by failure to pay during every quarterly payment cycle? Thanks!

[WendyS]

Hi jenny217,

The general rule is that you must pay as you go. Meaning that when you file your tax return, if you haven't paid enough taxes through withholdings or estimated tax payments then you might owe an underpayment penalty. 

To determine whether you need to make quarterly estimates, answer these questions:

• Do you expect to 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.

• Do you expect your federal income tax withholding (plus any estimated taxes paid on time) 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.

• 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 (Form 1040, line 8b) 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 you owed for the previous year? If so, then you're not required to make estimated tax payments.

If you answered "no" to all of these questions, you must make estimated tax payments using Form 1040-ES. To avoid a penalty, your total tax payments (estimated taxes plus withholding) during the year must satisfy one of the requirements above.

Please remember that when you are preparing your 2021 tax return, should the software calculate an underpayment penalty, follow the prompts and review the underpayment penalty section.  You will have an option to choose the annualized income method.  By using this method, you will report uneven income earned during the year and potentially reduce or eliminate your underpayment penalty, especially if your income is earned in quarter 4. The fourth quarter estimated tax payment is due January 18, 2022. (normally it’s on January 15^th but is later this year due to the weekend)

[jenny217]

Thanks. The question was really about the spacing out or pacing of payments. If I don't know until Q4 that I'll have 1099 income, do I somehow get penalized for NOT anticipating in Q1, Q2, or Q3 that I would have that Q4 income? Put another way, do you have to pay every quarter to avoid the penalty?

[VolvoGirl]

It is based on when you get the income.  But Turbo Tax doesn't know when you received it so you have to tell it.

If Turbo Tax gives you a penalty you might be able to eliminate it or at least reduce it.  You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

If you have the desktop program you can switch to Forms Mode (click forms in the upper right (left for Mac)) and open the 2210 form.  If the 2210 doesn't show up in the left column, click on Open Forms at the top of the left column.  Type 2210 in the search box and open the 2210 form.  Check box C to let the IRS calculate it.

Form 2210  https://www.irs.gov/pub/irs-pdf/f2210.pdf

Instructions https://www.irs.gov/pub/irs-pdf/i2210.pdf