What is meant by "no tax liability" in the exceptions to the estimated tax penalty?

"No tax liability" in the context of exceptions to the estimated tax penalty means that the individual did not owe any tax for the preceding taxable year. This can be determined if the total tax shown on the individual's tax return for the prior year was zero or if the individual was not required to file a tax return for that year due to their gross income being below the filing threshold.

To qualify for the "no tax liability" exception, the following conditions must be met:

1. The preceding taxable year must have been a full 12-month period.
2. The individual must have been a U.S. citizen or resident for the entire preceding taxable year.

If these conditions are satisfied, the individual will not be subject to the estimated tax penalty for the current year, even if they underpay their estimated taxes. This exception is designed to provide relief to taxpayers who had no tax obligation in the previous year, recognizing that their financial situation may not have required estimated tax payments.

In summary, "no tax liability" means:

• Total tax for the prior year was zero, or
• The individual was not required to file a tax return for the prior year due to low income,
• The prior year was a full 12-month period,
• The individual was a U.S. citizen or resident for the entire prior year.

Sources:
§ 6654. Failure by individual to pay estimated income tax
§ 1.6654-2. Exceptions to imposition of the addition to the tax in the case of individuals.
Instructions for Form 2210 (2023)
Publication 505 (2024)
Publication 17 (2023)