To determine if you need to file quarterly individual estimated tax payments, you should consider the following criteria:
- Expected Tax Liability: You must make estimated tax payments if you expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.
- Comparison of Withholding and Credits: Your withholding and refundable credits should be less than the smaller of:
- 90% of the tax to be shown on your current year’s tax return, or
- 100% of the tax shown on your prior year’s tax return, provided that the prior year’s tax return covered all 12 months.
- Special Rules for Higher Income Taxpayers: If your adjusted gross income (AGI) for the prior year was more than $150,000 ($75,000 if married filing separately), you should substitute 110% for the 100% in the comparison above.
- Special Rules for Farmers and Fishers: If at least two-thirds of your gross income for the current or prior year is from farming or fishing, your required annual payment is the smaller of:
- 66 2/3% (0.6667) of your total tax for the current year, or
- 100% of the total tax shown on your prior year’s return, provided that the prior year’s tax return covered all 12 months.
- Income Not Subject to Withholding: If you have income from which no U.S. income tax is withheld (e.g., self-employment income, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards), and the tax withheld from your other income is not enough to cover your tax liability, you may need to make estimated tax payments.
- Due Dates for Installments: Estimated tax payments are generally made in four installments throughout the year. The due dates for these installments are:
- 1st installment: April 15
- 2nd installment: June 15
- 3rd installment: September 15
- 4th installment: January 15 of the following taxable year
- Exceptions and Special Circumstances: No addition to tax for underpayment of estimated tax will be imposed if:
- The tax shown on your return for the taxable year, reduced by the credit allowable under section 31, is less than $1,000.
- You had no tax liability for the preceding taxable year, which was a full 12-month year, and you were a U.S. citizen or resident throughout that year.
- The Secretary determines that the underpayment was due to casualty, disaster, or other unusual circumstances, and imposing the addition to tax would be against equity and good conscience.
- You file your return and pay the full amount of tax due by January 31 of the following taxable year, thus avoiding the penalty for the 4th required installment.
By evaluating these criteria, you can determine whether you need to file quarterly individual estimated tax payments.
Sources:
Publication 505 (2024)
Publication 513
Notice 2020-3
Publication 554 (2022)
§ 6654. Failure by individual to pay estimated income tax
