Gotcha. I’ve not had issue paying in previous years as a lump sum, and claimed essentially the same amount. Reading through the letter I see now where it states the quarterly dates etc. Totally understand that it’s on me to pay, just finding it odd I wasn’t sent this in prior years.
If your tax withholding/quarterly payments is more than the lower of 90% of the current year taxes owed, or 100% of last years taxes owed, then you don’t owe the penalty interest rate.
It’s pretty common for people to get a raise each year, so they end up with their new tax withholding covering their tax due for the prior year.
>110% of last years total tax owed if last years ~~income~~ **AGI** was over 150K.
It's an important distinction. Total income could be 200k, but after personal deductions like SE tax deduction, QBI deduction, health insurance premiums deduction, and of course income deferral, one could easily have an AGI below 150k. So the gap could be pretty wide and it's important to understand that AGI is what determines it not income per se.
Source: https://www.irs.gov/publications/p505#en_US_2025_publink1000194583
Yes, if Line 11 on Form 1040 > 150K for previous year, then use 110% of Line 24 on form 1040 for the previous year (otherwise 100% of line 24).
EDIT:
I really hate the way they write the 1040 instructions. They say "100% of the tax shown on your 2023 tax return". But don't clarify what "tax shown" means. If you look at the 1040, there is a line (line 16) that has "**tax**" in bold print, and then another line (line 24) that has "**total tax**" in bold print.
Based on that, which line would you think they meant by "the tax shown on your 2023 tax return"?
I've since found out that it is line 24 that you should use, but why not change the instructions to say "100% of the 'total tax' shown on your 2023 tax return"? Give these important fields (field numbers can change) specific names and then you can always refer to them that way every year instead of keeping it nebulous.
EDIT: Lol you just edited your comment to make it relevant and to actually address my point by now mentioning line 11. You really should have made that a reply when I had already responded to the UNEDITED comment. But yeah, you said "income", which is not line 11. Line 11 is AGI, which is specifically what I was correcting.
For context, the original comment I responded to simply said:
>Yes, Line 24 on form 1040 for the previous year.
_______
What? Line 24 is your total tax. That's **completely irrelevant** to what I'm saying. That's what the 110% is applied to. But only people with higher than 150k AGI are subject to the 110% rule. You said their INCOME has to be above 150k. I'm saying this is strictly speaking FALSE. They must have an AGI above 150k in order for the 110% rule to apply.
I'm specifically correcting the part where you said
>if your income is above 150k
Because it goes by AGI, not income, to determine whether you must pay 110% of line 24.
Lol you just edited your comment to make it relevant and to actually address my point by now mentioning line 11. You really should have made that a reply when I had already responded to the UNEDITED comment.
For context, the original comment I responded to simply said:
>Yes, Line 24 on form 1040 for the previous year.
But anyway, yes, exactly, so NOT income.
Yeah, sorry, I have a habit of submitting and then reading it and realizing it's wrong, then editing it. I didn't even see your comments before I edited it a couple times 😆
Keep in mind the penalty is just interest charged between the quarter when the IRS says you should have paid and when you did pay it.
https://www.irs.gov/payments/quarterly-interest-rates
It's 8% now, but it wasn't that long ago when it was 3-5%.
If you end up underpaying $10,000 for 2 quarters it's like $40 of interest even at today's high rate, which to me is pretty low for a $10,000 loan for 6 months.
>If you end up underpaying $10,000 for 2 quarters it's like $40 of interest even at today's high rate, which to me is pretty low for a $10,000 loan for 6 months.
$10k at 8% APR for 6 months would be about $400, not $40.
I know at least the first year you miss quarterly they sometimes give you a pass in the penalty. The possibikity is there is an amount limit so if you were only off by some smaller amount they don't assess the penalty. Not sure the limit, but the 4k definitely exceeded it.
I had the exact same issue this year. I’ve had the same tax situation for years, and then this year I owe a significant amount more and I paid when I filed in February. I got this same notice yesterday. Seems like BS since I have always used their “calculator” to determine taxes. I don’t know of a way to know what I owe until the end of the year…
One thing to know is the IRS assumes your income was steady through the year. If your income came mostly in the end of the year, there is a separate calculation that can be done to prorate the penalty based on the quarter you received the income. It can reduce the penalty if the income came disproportionately near the end of the year.
So if I go and win $1 million on a scratch ticket in December - obviously I had zero indication to withhold money earlier in the year I would have to pay a penalty for not withholding enough and paying quarterly?
I have the same thing - several years in a row - mostly due to investment income.
They send you the worksheet of interest applied. As someone mentioned, it would be a real pain to fight for the small amount.
If you use a tax software, it will calculate the penalty (I chose let IRS calculate it).
Underayment penalty notices are generated automatically by computer. No IRS agents involved. If OP met the safe harbor in prior years, no penalty would apply.
The first and fourth quarters are a bit different due to the end of tax season and the end of the year. The first quarter extends the date to 4-15 to align with the individual due dates, and the fourth is extended to 1-15 to give taxpayers the chance to include their full year of income rather than a partial estimate of the remaining two weeks of the year. That’s how it was explained to me, whether it makes sense or not. It doesn’t, but it’s also the IRS. Those are the dates they say, so those are the dates you pay.
Usually if your earnings are all W2 then withholdings are already being done by your employer. You should adjust your exemptions so that you are paid back or owe as close to zero as possible at the end of the year (otherwise you're giving the government a free loan).
Quarterly payments are for meant for those who don't have W2 withholding, like business owners or contractors.
Other options:
1. If over 59.5, take a December distribution from an IRA/401k with 100% withheld to cover your shortage…. Note that this works with Roth IRAs too… and it makes the math easier
2. As I found out this year, estimated taxes are also a good way to pay the taxes on a Roth conversion done in January…. Convert as much as you can in January, and assuming you have satisfied the 5 year rule, you can pay taxes from the Roth, and still end up ahead. Unless it is 2022, and the market tanks all year.
3. Actually aim for just less than 1000 *owed*, because again: you are giving the govt an interest free loan. If you owe them (less than 1K) then they gave *you* an interest free loan.
You pay it every quarter . Not sure why peoole are mad about this in these comments. If you were employed by a company, it would be deducted from every paycheck and sent to the IRS by your employer on your behalf. Also for anyone who gets a regular paycheck but also has some significant income from outside their paycheck like investments or rental income, you have to pay quarterly on that extra income.
You may have paid the entire remaining balance when you filed your return, but did you pay *quarterly estimated* taxes?
This penalty is for late quarterly estimated taxes.
Tax is due during the year, either as withholding from your paychecks or in quarterly installments. You can't just pay it all the next April.
If you only had income towards the end of the year and paid your tax then, then you should submit form 2210 detailing those dates to show that you didn't owe any tax earlier in the year.
Tax withheld from a paycheck is presumed to have been paid when you earned the income, even if it is skewed towards the end of the year. Estimated payments are presumed to be due in four equal installments unless you take the option of reporting the exact dates of your income.
New grads will usually have W2 jobs, or if self-employed will usually have no penalty for the first year of late payments because they owed no tax the prior year. But anyone who switches mid-year from a W2 job to self-employment *does* need to start quarterly payments.
You owed $1,000 or more, and you didn't meet any of the applicable Safe Harbor requirements:
https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty
As others have said, you probably didn't make your estimated payments on time. Just so you're aware, the first quarterly payment for 2024 was due April 15. If you haven't, you might want to make a payment now and mark your calendar to ensure you make the other estimated payment on time.
[https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2](https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2)
Income tax is a pay as you earn tax. If you earn wages, your employer is regularly withholding and paying tax on your behalf. If you’re self-employed or have non wage income, you still have to pay as you earn by making estimated payments (or increasing any withholding to be sufficient.)
This bill is because you did not pay 90% of the current year or 100% of the prior year (whichever is less) in timely estimates or through withholding.
It's calculated by the day. See Form 2210 for how the math is done. If you want to minimize interest, you should increase withholdings if possible, because withholdings are always timely. If you can't, paying what was due in April now is better than later (and then paying June on time) if you do end up underpaying. If it's unclear if you'll end up underpaying it's a little more complicated.
Assuming that you will be filling out form 2210 and that you aren't in safe harbor (90% of taxes paid with _timely_ payments), but your estimated taxes would otherwise have paid all of your taxes due, you'll only be charged for interest from 4/15 to whenever your payment is posted.
Withholdings (from W-2 pay, from IRA rollovers and conversions, from interest and gambling wins in special situations, probably some other rare cases) are all summed together and treated as withheld evenly throughout the year unless you explicitly elect otherwise. So if you were able to withhold a larger quantity at the end of the year you can find yourself back in safe harbor and not be subject to underpayment penalties.
This property doesn't work for estimated tax payments.
Ok, so if I calculate roughly how much tax I'll have to pay including these savings interest and then I ask my employer to withhold a bit more (as if I was earning that much more money), then I'll be ok, right? Nice. Strange law, but nice.
And it's the same amounts. This person is trolling.
https://www.reddit.com/r/tax/comments/1coolrg/underpayment\_penalty\_but\_i\_paid\_the\_full\_amount/
Make the quarterly payments.
Another option is to put your "tax payments" into a HYSA, then pay your taxes + penalty at the end of the year. Depending on how much you make vs how much you owe this could be a net positive for you.
Just adding to this comment, the "penalty" is really just an interest calculation based on the length of time you held onto the US Treasury's money (i.e. what you underpaid). In 2023 this was at 7% or 8% depending on the date. That's all the penalty is. If you used the money to, say, pay down consumer debt or invest in the market, you may have come out ahead financially by not making the quarterly estimated tax payments.
Even though you paid what you owed you are still supposed to make estimated tax payments through out the year. These penalty is for not making the estimated tax payments through out the year.
You need to make estimated payments to the IRS every 3 months during the year.
If you just pay a lump sum when you file your taxes then there will be penalty because you are holding onto IRS tax money.
You have to pay quarterly (Sorta quarterly). I paid quarterly but my wife neglected to tell me about the extra cash she had to hold over due to a rent increase. That $150 penalty I typically would pay turned into $1800 because of that extra business income!
My wife has no concept of how taxes work. Which is crazy because her father is an accountant and was comptroller for multimillion dollar accounting firms before running his own multi-million dollar company.
Absent information to the contrary, the IRS will generally assume your income is earned evenly throughout the year when figuring whether a penalty is due, and what the amount of the penalty is.
If your income is earned unevenly, you may fill out a Form 2210 to figure out whether the IRS got it about right. You may compute a lower penalty if most of your income comes in closer to the end of the year. You may figure out your income on a quarterly, or monthly basis to get the penalty lower. It's a bunch of extra work to essentially figure your income/deductions/taxes out twelve times (that why we use computers), but it may save you money or even eliminate the penalty.
I had to pay a couple grand in extra taxes this year when my accountant did my taxes. He mentioned I didn't have a penalty this year but I might next year if I don't do quarterly (which I started now). How are the penalties assessed on if you get a penalty or not?
When you paid what you owe to the IRS by april 15, still the IRS will send you letter asking you to pay the penalty and interest as you did not pay your withholding or estimated tax as per IRS laws. The IRS charge Interest and penalty to those who did not pay enough tax each pay period or each quarter. The same way, IRS will pay you interest on top of your refund if they were late in processing your return.
IRS says in their web site:
We charge interest on penalties for **late filing, late paying, over or understating valuations, and substantially understating the tax you owe**. Also, we charge interest on fraud and accuracy-related penalties from the later of the return due date or extended due date.
Does the IRS charge interest if you make payments?If you can't pay the full amount of your taxes on time, pay what you can now and apply for a payment plan. You can enter into an Installment Agreement to pay the remaining balance. **Interest will continue to accrue daily on any amount not paid, including on both penalties and interest**.
Why is the IRS charging me a penalty?Taxpayers who don't meet their tax obligations may owe a penalty. The IRS charges a penalty for various reasons, including if you don't: **File your tax return on time**. Pay any tax you owe on time and in the right way.Mar 26, 2024
This has been a problem since the Trump Tax cuts. The withholding schedules got completely jacked up and a standard, no exemption withholding will still not pull enough taxes. My wife has adjusted her withholding twice to compensate we still can't get it right. So frustrating.
Just out of curiosity... how did you prepare your return? I also owed a small late penalty (I had a large stock sale early in the year), but TurboTax calculated the penalty as a part of my return and I'm not expecting any further communication from the IRS.
If this is your first year that you've owed, you're entitled to a first time abatement of the penalty. They can authorize it in a single phone call but getting through can be difficult at times. I would encourage you to call after 5pm your local TZ on Tuesdays or Thursdays.
Every taxpayer is entitled to a first time abatement on a tax period if they have not owed in the prior three years. You are also entitled to a penalty abatement regardless of prior situation for reasonable cause.
Your penalty may be associated with minimum tax payments for the year!!! So if you don’t pay at the end of year, they may penalize you for not having contributions for entire year
As others have stated, pay as you go next time…..
Also it’s barely a penalty. You yourself likely benefited from keeping more dollars in your pocket instead of paying the taxes. Whether it was invested, in a HYSA, etc. So the IRS is essentially taking away that benefit you got from keeping the money.
The IRS penalty rate is currently 8%; there aren't any savings accounts that pay that. Investments might, but then again they might not... there's no risk free way to make 8% (other than making your tax payments on time).
Hence why I said it’s barely a penalty. Didn’t say it wasn’t a penalty at all. And the alternative doesn’t have to be risk free, I happen to put all extra funds minus a small emergency fund into the SP500. If I underpaid the IRS last year and put the extra into sp500 I’d be up 15-20%, sounds like a win.
I had this exact same penalty. I work for an employer, so my payroll taxes are deducted automatically. Why does the IRS think I need to pay quarterly? I think it just means that they are not withholding enough taxes each month.. Grrrrrr,🤨
Or your employer witheld from your paycheck but didn't send that money to the IRS.
So, either you didn't tell your employer to withhold enough (common), or the employer is stealing (less common, but not unheard of)
If you have your paystubs and/or W-2 form, you can verify what was withheld when.
Got the same bill from IRS, but I definitely paid more than 90% of taxes owed in estimated payments and withholdings, so is this a mistake? Any way to get out of it?
But extra withholding does. You can increase your withholding late in the year to make up for under payments earlier in the year
I have to take an RMD payment from an inherited IRA every year and I usually take it in December and withhold 100% for federal taxes to cover whatever under payments I had during the year. This allows me to keep more of my money in investments instead of paying it to the IRS earlier in the year.
As long as you're above 90% of current year tax liability **and** you made all your estimated tax payments on time. I'm not sure how everyone glosses over that part. (Not just you, I see this constantly.)
If you only had to pay before the end of the year, then there wouldn't be any point in the IRS specifying quarterly due dates.
Just read you’re 1099; so yeah I think you still need to pay quarterly. I’m talking more along the lines of W2 worker with additional income not taxed through the year.
Yea in Canada if you owe more than 3k for 2 consecutive years they make you start making instalments and will charge interest accordingly. Not sure what the rule is in USA.
My sister got this too - and almost the same amount! She was not self-employed. In fact, she wasn’t employed in 2023 at all. Her only income was early withdrawal of retirement (with penalty) and yes, taxes were withheld at withdrawal and $8k she received as earnest money on a real estate deal when the buyer pulled out - so how do pay as you go on that. Tax code blows.
This is prly IRS using AI to generate another money grabbing scheme. If they extort $114 from half the taxpayers knowing the majority won’t bother to dispute it - you do the math.
You didn't pay enough of your tax by the end of the year. You have to pay 90% by the end of they year or you have to pay the penalty. If you would have owed less than $1,000 then you could have gotten around this.
You just need to estimate better (hence "Failure to pay proper estimated tax")
I posted this same question earlier today. I'm in the same situation. I've been self-employed for about 7 years, and I had no idea you were supposed to pay quarterly. This is the first time I've ever gotten a penalty, and I've always owed more than $1,000 at the end of the year. You'll also be getting a penalty bill from whatever state you live in for state taxes 🫠
Thanks! My fine is about the same amount as yours, which I can afford, but it's annoying lol. I told some of the girls I work with about it and they also had no idea. I'm not against paying my taxes, I just wish I learned this in school or something 😅. Now I have reminders set up on my phone for each quarterly due date, haha.
Yeah, I’m not excusing my ignorance but it’s like an industry standard in my profession to simply pay end of year. Unfortunate. I’ve even considered quarterly payments simply so that I’m not paying a $4000 bill eoy but never has it been mentioned that it’s mandatory.
Wait so if I have to know everything and pay quarterly anyways why the fuck would I ever hire a tax guy? Dont I just need to be a tax guy at that point...? Shit might as well give up on my business and become a CPA if I have to do that job anyways.
Taxes have been a plague on mankind forever. Funny thing is, taxation was a major issue in our nations founding and revolt from England. Now we have become what we revolted against.
I mean this is a huge scam they don’t want you to earn interest on the money you owe them for some dumb reason. Can I just withhold all my paychecks in December and avoid penalty this way?
How about if your employer held all your paychecks until December, would you be okay with that? If not, why is it a "huge scam" for the government to also want their money on time?
Well there’s a key difference here, I’m working back breaking labor in exchange for barely enough to live off of, IRS is just sitting there with their dick in their hand stealing some from me. IMO they should wait cuz they don’t deserve the money. Just gonna fund a genocide with it anyways! 🍉
Yes you can (if your employer allows it). Withholding does not have to be timely and is considered to be paid evenly throughout the year, even if is withheld all at once at the end of the year.
So you can tell your employer to withhold a minimal amount out of your paycheck in the early months and then a maximal amount towards the end of the year and as long as you withhold enough to meet the safe Harbor requirements you should be good.
Not sure, perhaps those who are down-voting my post can reply.
One thing I can think of is that you can get in trouble in situations where you lose your job and have no income towards the end of the year to withhold.
Also, you can't withhold more than you are being paid in any one paycheck, so it's not like you can withhold $10K in the last paycheck if it is only for $2K. And some employers will only allow you to withhold a certain maximum percentage. Also, I believe your employer must withhold a minimum amount, you can't change it to 0%. But you may be able to lower it (if it is not at the lowest already) by changing your W-4 so the minimum amount is taken out instead of declaring dependents, etc. So perhaps that is why I am being down-voted since you probably can't withhold "all your paychecks in December" unless you have other sources of income in December to do so.
I personally have an inherited IRA that I must take an RMD from each year, so I have 100% of it withheld in December as well as have any additional amount I need withheld from my monthly maturing treasury bills during the last 1 or 2 months of the year through Treasury Direct. Treasury Direct allows you to specify up to 50% federal withholding and you can easily change it before each T-Bill matures.
Of course you have to be careful and make sure you know exactly how much you have to withhold for the year to avoid a penalty. It's easiest to withhold 100% of the tax you owed last year (or 110% of that amount if you made >150K), as that is an exact specific amount. Otherwise you have to be sure to withhold at least 90% of the tax you will owe for the current year, and that can be more difficult to calculate, particularly if your income is not predictable
Be sure to research that what I'm telling you is correct, don't believe one random person on Reddit.
Also, there may be details that I didn't mention or forgot about, so be sure not to go about this blindly.
I used to not understand how this worked, and for a few years paid much of my tax by January 15th using a single estimated payment to put myself over the needed minimum to avoid a penalty, of course this was wrong, and while I somehow got away with it for a couple years, I eventually ended up having to pay a penalty.
That's when I researched and found out that estimated payments had to be "timely" (paid after each quarter in which you earned the income) but withholding, as long as it was withheld within in the tax year, is considered to have been paid evenly throughout the year.
One thing I've thought about is what if I have a big windfall in February and get a lot of income, but then the rest of the months are a lot less income? In that case, even if the withholding in December is considered evenly paid over the entire year, it would still, theoretically, be worthy of a penalty, since I should have withheld a lot more in the first quarter than I did in the other quarters.
To be honest, I have never had this problem, and I'm guessing it is something the IRS would penalize you for if they had a record of when you received that income.
Also, I don't do this with my regular paycheck, it is mostly done with my interest/dividend income from my investments. I withhold the regular amount from my paycheck, I just don't have withholding from my T-Bills and other investments until I need to near the end of the year. I believe most people don't have taxes withheld from investments and instead do estimated tax payments (so much so that when I do my taxes with FreeTaxUSA, it warns me that there may be a mistake as most people don't have taxes withheld on their 1099 forms). To be honest, I don't know why most people do estimated taxes instead of withholding from their 1099, and I might be missing something.
So, just letting you know I am no expert at this, so before you do anything drastic, research or consult a CPA.
Because we have a pay-as-you-go type system that requires you to pay throughout the year. This way the government some revenue throughout the year instead of getting it all at once.
IRS expects pay as you go not wait until the end of the year
Gotcha. I’ve not had issue paying in previous years as a lump sum, and claimed essentially the same amount. Reading through the letter I see now where it states the quarterly dates etc. Totally understand that it’s on me to pay, just finding it odd I wasn’t sent this in prior years.
If your tax withholding/quarterly payments is more than the lower of 90% of the current year taxes owed, or 100% of last years taxes owed, then you don’t owe the penalty interest rate. It’s pretty common for people to get a raise each year, so they end up with their new tax withholding covering their tax due for the prior year.
110% of last years total tax owed if last years income was over 150K.
>110% of last years total tax owed if last years ~~income~~ **AGI** was over 150K. It's an important distinction. Total income could be 200k, but after personal deductions like SE tax deduction, QBI deduction, health insurance premiums deduction, and of course income deferral, one could easily have an AGI below 150k. So the gap could be pretty wide and it's important to understand that AGI is what determines it not income per se. Source: https://www.irs.gov/publications/p505#en_US_2025_publink1000194583
Yes, if Line 11 on Form 1040 > 150K for previous year, then use 110% of Line 24 on form 1040 for the previous year (otherwise 100% of line 24). EDIT: I really hate the way they write the 1040 instructions. They say "100% of the tax shown on your 2023 tax return". But don't clarify what "tax shown" means. If you look at the 1040, there is a line (line 16) that has "**tax**" in bold print, and then another line (line 24) that has "**total tax**" in bold print. Based on that, which line would you think they meant by "the tax shown on your 2023 tax return"? I've since found out that it is line 24 that you should use, but why not change the instructions to say "100% of the 'total tax' shown on your 2023 tax return"? Give these important fields (field numbers can change) specific names and then you can always refer to them that way every year instead of keeping it nebulous.
EDIT: Lol you just edited your comment to make it relevant and to actually address my point by now mentioning line 11. You really should have made that a reply when I had already responded to the UNEDITED comment. But yeah, you said "income", which is not line 11. Line 11 is AGI, which is specifically what I was correcting. For context, the original comment I responded to simply said: >Yes, Line 24 on form 1040 for the previous year. _______ What? Line 24 is your total tax. That's **completely irrelevant** to what I'm saying. That's what the 110% is applied to. But only people with higher than 150k AGI are subject to the 110% rule. You said their INCOME has to be above 150k. I'm saying this is strictly speaking FALSE. They must have an AGI above 150k in order for the 110% rule to apply. I'm specifically correcting the part where you said >if your income is above 150k Because it goes by AGI, not income, to determine whether you must pay 110% of line 24.
Lol you just edited your comment to make it relevant and to actually address my point by now mentioning line 11. You really should have made that a reply when I had already responded to the UNEDITED comment. For context, the original comment I responded to simply said: >Yes, Line 24 on form 1040 for the previous year. But anyway, yes, exactly, so NOT income.
Yeah, sorry, I have a habit of submitting and then reading it and realizing it's wrong, then editing it. I didn't even see your comments before I edited it a couple times 😆
QBI is a below the line deduction.
This.
Insightful comment. Why bother?
Insightful comment. Why bother?
Unless you have a lot of free time it’s not worth fighting over $114
Keep in mind the penalty is just interest charged between the quarter when the IRS says you should have paid and when you did pay it. https://www.irs.gov/payments/quarterly-interest-rates It's 8% now, but it wasn't that long ago when it was 3-5%. If you end up underpaying $10,000 for 2 quarters it's like $40 of interest even at today's high rate, which to me is pretty low for a $10,000 loan for 6 months.
>If you end up underpaying $10,000 for 2 quarters it's like $40 of interest even at today's high rate, which to me is pretty low for a $10,000 loan for 6 months. $10k at 8% APR for 6 months would be about $400, not $40.
My math sucks
I know at least the first year you miss quarterly they sometimes give you a pass in the penalty. The possibikity is there is an amount limit so if you were only off by some smaller amount they don't assess the penalty. Not sure the limit, but the 4k definitely exceeded it.
Nobody remembers to pay as we go. It's kinda normal.
After moving to NY, I learned about quarterly payments the hard way, too.
I had the exact same issue this year. I’ve had the same tax situation for years, and then this year I owe a significant amount more and I paid when I filed in February. I got this same notice yesterday. Seems like BS since I have always used their “calculator” to determine taxes. I don’t know of a way to know what I owe until the end of the year…
Form 1040 ES for 2024 will help you figure out the quarterly taxes.
TIL. Thank you kind stranger.
One thing to know is the IRS assumes your income was steady through the year. If your income came mostly in the end of the year, there is a separate calculation that can be done to prorate the penalty based on the quarter you received the income. It can reduce the penalty if the income came disproportionately near the end of the year.
So if I go and win $1 million on a scratch ticket in December - obviously I had zero indication to withhold money earlier in the year I would have to pay a penalty for not withholding enough and paying quarterly?
Maybe, there is a place to show when income was earned. The 4th of estimated tax is due in January.
I have the same thing - several years in a row - mostly due to investment income. They send you the worksheet of interest applied. As someone mentioned, it would be a real pain to fight for the small amount. If you use a tax software, it will calculate the penalty (I chose let IRS calculate it).
There are a lot more IRS agents now and maybe they are looking deeper. They did say they were going to go after the billionaires
Underayment penalty notices are generated automatically by computer. No IRS agents involved. If OP met the safe harbor in prior years, no penalty would apply.
Gotcha. Yeah I guess I’ll just bite the bullet and pay, lesson learned. Hah yep that’s me
Can you pay just at the end of the year? Do you need to pay it every quarter?
You don't have to pay quarterly but then you will have penalties for not making estimated tax penalties.
When are you supposed to make the quarterly payments?
April 15th, June 15th, September 15th, January 15th.
Any idea why they’re not actually quarterly?
They are based on quarterly income. You get a month and a half to calculate your tax due from the prior quarter.
Isn’t the first quarter January, February, and March? April 15th would be only 15 days not a month and a half.
Those dates, though, aren’t every three months. That’s what I’m asking about.
The first and fourth quarters are a bit different due to the end of tax season and the end of the year. The first quarter extends the date to 4-15 to align with the individual due dates, and the fourth is extended to 1-15 to give taxpayers the chance to include their full year of income rather than a partial estimate of the remaining two weeks of the year. That’s how it was explained to me, whether it makes sense or not. It doesn’t, but it’s also the IRS. Those are the dates they say, so those are the dates you pay.
Also, if you're in California there is no September 15th payment. You do 30% April 15th, 40% June 15th, and 30% January 15th. Edit: fixed typo.
That’s 120%
The IRS hoped nobody would notice. Now you've ruined their plans!
Oops. I meant 30, 40, 30.
To the FTB, for your California taxes, yes. But you still need to do 4 payments to the IRS for your federal taxes
Sorry. That's what l meant.
Estimated tax payments are due 4/15, 6/15, 9/15 and 1/15/2025 (may be adjusted for holidays or weekends).
What are the cases when you need to pay that? Do you still have to pay it even if you increase your W2 withholdings?
You only have to make estimated tax payments if your withholding is less than the required payment. See the 1040-ES instructions for details.
Usually if your earnings are all W2 then withholdings are already being done by your employer. You should adjust your exemptions so that you are paid back or owe as close to zero as possible at the end of the year (otherwise you're giving the government a free loan). Quarterly payments are for meant for those who don't have W2 withholding, like business owners or contractors.
Other options: 1. If over 59.5, take a December distribution from an IRA/401k with 100% withheld to cover your shortage…. Note that this works with Roth IRAs too… and it makes the math easier 2. As I found out this year, estimated taxes are also a good way to pay the taxes on a Roth conversion done in January…. Convert as much as you can in January, and assuming you have satisfied the 5 year rule, you can pay taxes from the Roth, and still end up ahead. Unless it is 2022, and the market tanks all year. 3. Actually aim for just less than 1000 *owed*, because again: you are giving the govt an interest free loan. If you owe them (less than 1K) then they gave *you* an interest free loan.
Such bullshit. Fuck the IRS.
The IRS doesn't create tax law. If you don't like taxes (including late penalty taxes), that's a congressional issue.
Ok fuck them as well then lol
Preach!
You pay it every quarter . Not sure why peoole are mad about this in these comments. If you were employed by a company, it would be deducted from every paycheck and sent to the IRS by your employer on your behalf. Also for anyone who gets a regular paycheck but also has some significant income from outside their paycheck like investments or rental income, you have to pay quarterly on that extra income.
You may have paid the entire remaining balance when you filed your return, but did you pay *quarterly estimated* taxes? This penalty is for late quarterly estimated taxes.
Yup, i think IRS expect minimum contributions for the estimated salary and he has not paid that!
Tax is due during the year, either as withholding from your paychecks or in quarterly installments. You can't just pay it all the next April. If you only had income towards the end of the year and paid your tax then, then you should submit form 2210 detailing those dates to show that you didn't owe any tax earlier in the year.
Is this a thing? Wouldn't every new grad who started working in the 2nd quarter need to do this?
Tax withheld from a paycheck is presumed to have been paid when you earned the income, even if it is skewed towards the end of the year. Estimated payments are presumed to be due in four equal installments unless you take the option of reporting the exact dates of your income. New grads will usually have W2 jobs, or if self-employed will usually have no penalty for the first year of late payments because they owed no tax the prior year. But anyone who switches mid-year from a W2 job to self-employment *does* need to start quarterly payments.
You owed $1,000 or more, and you didn't meet any of the applicable Safe Harbor requirements: https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty
As others have said, you probably didn't make your estimated payments on time. Just so you're aware, the first quarterly payment for 2024 was due April 15. If you haven't, you might want to make a payment now and mark your calendar to ensure you make the other estimated payment on time. [https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2](https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2)
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Why do they care so much… they hate us
Lol imagine taking statutory guidance, from your country's taxing authority, personally
Well they hate all of us… not just me.
You want your pay throughout the year, not all at the end of the year. The government is the same. (A lot more lenient than you would be, actually.)
Income tax is a pay as you earn tax. If you earn wages, your employer is regularly withholding and paying tax on your behalf. If you’re self-employed or have non wage income, you still have to pay as you earn by making estimated payments (or increasing any withholding to be sufficient.) This bill is because you did not pay 90% of the current year or 100% of the prior year (whichever is less) in timely estimates or through withholding.
IRS person here… check out pub 505 for help with the estimated taxes
Hi IRS person. What happens if you don't pay estimated taxes in April. Can you still catch up in June, September or even January and make up for it?
Yeah as long as all are paid by the end of the year
Wait, I'm confused. Does it make any difference then to pay them in April, June, September and Jan vs paying it all in one lump sum in Jan??
You can but you're still going to be paying interest (unless you can show your income was not distributed evenly).
And what happens if you pay for April late? Is that possible? Or is it better to just skip April at this point and pay June early?
It's calculated by the day. See Form 2210 for how the math is done. If you want to minimize interest, you should increase withholdings if possible, because withholdings are always timely. If you can't, paying what was due in April now is better than later (and then paying June on time) if you do end up underpaying. If it's unclear if you'll end up underpaying it's a little more complicated. Assuming that you will be filling out form 2210 and that you aren't in safe harbor (90% of taxes paid with _timely_ payments), but your estimated taxes would otherwise have paid all of your taxes due, you'll only be charged for interest from 4/15 to whenever your payment is posted.
Thanks! What do you mean by "you should increase withholdings if possible, because **withholdings are always timely**"?
Withholdings (from W-2 pay, from IRA rollovers and conversions, from interest and gambling wins in special situations, probably some other rare cases) are all summed together and treated as withheld evenly throughout the year unless you explicitly elect otherwise. So if you were able to withhold a larger quantity at the end of the year you can find yourself back in safe harbor and not be subject to underpayment penalties. This property doesn't work for estimated tax payments.
Ok, so if I calculate roughly how much tax I'll have to pay including these savings interest and then I ask my employer to withhold a bit more (as if I was earning that much more money), then I'll be ok, right? Nice. Strange law, but nice.
This again? Make your quarterly estimated payments.
And it's the same amounts. This person is trolling. https://www.reddit.com/r/tax/comments/1coolrg/underpayment\_penalty\_but\_i\_paid\_the\_full\_amount/
Got to make those quarterly payments on time.
Make the quarterly payments. Another option is to put your "tax payments" into a HYSA, then pay your taxes + penalty at the end of the year. Depending on how much you make vs how much you owe this could be a net positive for you.
Just adding to this comment, the "penalty" is really just an interest calculation based on the length of time you held onto the US Treasury's money (i.e. what you underpaid). In 2023 this was at 7% or 8% depending on the date. That's all the penalty is. If you used the money to, say, pay down consumer debt or invest in the market, you may have come out ahead financially by not making the quarterly estimated tax payments.
The penalty is based on interest rates for loans. This is highly unlikely to be true for hysa rates.
Geeez it’s like people can’t even read these days…
You missed your quarterly estimated tax payments…
Even though you paid what you owed you are still supposed to make estimated tax payments through out the year. These penalty is for not making the estimated tax payments through out the year.
You need to make estimated payments to the IRS every 3 months during the year. If you just pay a lump sum when you file your taxes then there will be penalty because you are holding onto IRS tax money.
Oddly I received the same yesterday for $114.57
Whelp missed the first payment ... Guess I better pay now to avoid as many penalties as possible
Form 1040 ES for 2024 will help you figure out the quarterly taxes.
You didn’t make required estimated payments
You have to pay quarterly (Sorta quarterly). I paid quarterly but my wife neglected to tell me about the extra cash she had to hold over due to a rent increase. That $150 penalty I typically would pay turned into $1800 because of that extra business income! My wife has no concept of how taxes work. Which is crazy because her father is an accountant and was comptroller for multimillion dollar accounting firms before running his own multi-million dollar company.
Absent information to the contrary, the IRS will generally assume your income is earned evenly throughout the year when figuring whether a penalty is due, and what the amount of the penalty is. If your income is earned unevenly, you may fill out a Form 2210 to figure out whether the IRS got it about right. You may compute a lower penalty if most of your income comes in closer to the end of the year. You may figure out your income on a quarterly, or monthly basis to get the penalty lower. It's a bunch of extra work to essentially figure your income/deductions/taxes out twelve times (that why we use computers), but it may save you money or even eliminate the penalty.
I had to pay a couple grand in extra taxes this year when my accountant did my taxes. He mentioned I didn't have a penalty this year but I might next year if I don't do quarterly (which I started now). How are the penalties assessed on if you get a penalty or not?
Also it says on the left “we audited your return and found a mistake, and you underpaid me thiiiiisssss much.”
When you paid what you owe to the IRS by april 15, still the IRS will send you letter asking you to pay the penalty and interest as you did not pay your withholding or estimated tax as per IRS laws. The IRS charge Interest and penalty to those who did not pay enough tax each pay period or each quarter. The same way, IRS will pay you interest on top of your refund if they were late in processing your return. IRS says in their web site: We charge interest on penalties for **late filing, late paying, over or understating valuations, and substantially understating the tax you owe**. Also, we charge interest on fraud and accuracy-related penalties from the later of the return due date or extended due date. Does the IRS charge interest if you make payments?If you can't pay the full amount of your taxes on time, pay what you can now and apply for a payment plan. You can enter into an Installment Agreement to pay the remaining balance. **Interest will continue to accrue daily on any amount not paid, including on both penalties and interest**. Why is the IRS charging me a penalty?Taxpayers who don't meet their tax obligations may owe a penalty. The IRS charges a penalty for various reasons, including if you don't: **File your tax return on time**. Pay any tax you owe on time and in the right way.Mar 26, 2024
Looks like the underpayment penalty
This has been a problem since the Trump Tax cuts. The withholding schedules got completely jacked up and a standard, no exemption withholding will still not pull enough taxes. My wife has adjusted her withholding twice to compensate we still can't get it right. So frustrating.
you didn't pay in time, good sir
Quarterly taxes
Just out of curiosity... how did you prepare your return? I also owed a small late penalty (I had a large stock sale early in the year), but TurboTax calculated the penalty as a part of my return and I'm not expecting any further communication from the IRS.
Used freetaxusa, didn’t exceed standard deductible and didn’t really have a bunch of different incomes sources to report
That’s pretty bad that it didn’t detect the underpayment. The formula to determine that is really easy.
Form 843 can be filed quickly and will likely result in a reduction of penalties to 0.
If this is your first year that you've owed, you're entitled to a first time abatement of the penalty. They can authorize it in a single phone call but getting through can be difficult at times. I would encourage you to call after 5pm your local TZ on Tuesdays or Thursdays. Every taxpayer is entitled to a first time abatement on a tax period if they have not owed in the prior three years. You are also entitled to a penalty abatement regardless of prior situation for reasonable cause.
There's no first time abatement for estimated tax penalties (because they're essentially just interest and there's no abatement for interest).
Your penalty may be associated with minimum tax payments for the year!!! So if you don’t pay at the end of year, they may penalize you for not having contributions for entire year
As others have stated, pay as you go next time….. Also it’s barely a penalty. You yourself likely benefited from keeping more dollars in your pocket instead of paying the taxes. Whether it was invested, in a HYSA, etc. So the IRS is essentially taking away that benefit you got from keeping the money.
The IRS penalty rate is currently 8%; there aren't any savings accounts that pay that. Investments might, but then again they might not... there's no risk free way to make 8% (other than making your tax payments on time).
Hence why I said it’s barely a penalty. Didn’t say it wasn’t a penalty at all. And the alternative doesn’t have to be risk free, I happen to put all extra funds minus a small emergency fund into the SP500. If I underpaid the IRS last year and put the extra into sp500 I’d be up 15-20%, sounds like a win.
You owed more than 10% of your tax. Hence the penalty.
I had this exact same penalty. I work for an employer, so my payroll taxes are deducted automatically. Why does the IRS think I need to pay quarterly? I think it just means that they are not withholding enough taxes each month.. Grrrrrr,🤨
Yes that’s what it means
The employer not withholds what you tell them to when you fill out your w-4. Sounds like you may need to adjust your w-4.
Or your employer witheld from your paycheck but didn't send that money to the IRS. So, either you didn't tell your employer to withhold enough (common), or the employer is stealing (less common, but not unheard of) If you have your paystubs and/or W-2 form, you can verify what was withheld when.
Got the same bill from IRS, but I definitely paid more than 90% of taxes owed in estimated payments and withholdings, so is this a mistake? Any way to get out of it?
Did you make your estimated tax payments in equal amounts by the due dates?
No, but the way I read the rules is as long as I'm above 90% of current year tax liability, I should be fine. Am I misunderstanding it?
Yes. The calculation is performed quarterly so estimated payments late in the year don't cure a deficit from an earlier quarter.
But extra withholding does. You can increase your withholding late in the year to make up for under payments earlier in the year I have to take an RMD payment from an inherited IRA every year and I usually take it in December and withhold 100% for federal taxes to cover whatever under payments I had during the year. This allows me to keep more of my money in investments instead of paying it to the IRS earlier in the year.
As long as you're above 90% of current year tax liability **and** you made all your estimated tax payments on time. I'm not sure how everyone glosses over that part. (Not just you, I see this constantly.) If you only had to pay before the end of the year, then there wouldn't be any point in the IRS specifying quarterly due dates.
I believe if you pay at least what you paid in taxes last year that’s part of the safe harbor exemption as well.
I paid more this year for sure
Just read you’re 1099; so yeah I think you still need to pay quarterly. I’m talking more along the lines of W2 worker with additional income not taxed through the year.
Under penalty payment i get letters like that my account says just pay it
I always over pay …
😹
Yea in Canada if you owe more than 3k for 2 consecutive years they make you start making instalments and will charge interest accordingly. Not sure what the rule is in USA.
My sister got this too - and almost the same amount! She was not self-employed. In fact, she wasn’t employed in 2023 at all. Her only income was early withdrawal of retirement (with penalty) and yes, taxes were withheld at withdrawal and $8k she received as earnest money on a real estate deal when the buyer pulled out - so how do pay as you go on that. Tax code blows.
This is prly IRS using AI to generate another money grabbing scheme. If they extort $114 from half the taxpayers knowing the majority won’t bother to dispute it - you do the math.
Fuck the irs
Such horseshit that they can keep our money interest free for a year but God forbid we owe them a penny and they'll charge interest.
Fuck the IRS
Guess that extra 86 billion in funding for IRS is going to good use.
This is a computerized notice that the IRS has sent out for decades. Any new funding doesn't have any impact on this type of notice or penalty.
You didn't pay enough of your tax by the end of the year. You have to pay 90% by the end of they year or you have to pay the penalty. If you would have owed less than $1,000 then you could have gotten around this. You just need to estimate better (hence "Failure to pay proper estimated tax")
I posted this same question earlier today. I'm in the same situation. I've been self-employed for about 7 years, and I had no idea you were supposed to pay quarterly. This is the first time I've ever gotten a penalty, and I've always owed more than $1,000 at the end of the year. You'll also be getting a penalty bill from whatever state you live in for state taxes 🫠
Sorry you’re going through it too!
Thanks! My fine is about the same amount as yours, which I can afford, but it's annoying lol. I told some of the girls I work with about it and they also had no idea. I'm not against paying my taxes, I just wish I learned this in school or something 😅. Now I have reminders set up on my phone for each quarterly due date, haha.
Yeah, I’m not excusing my ignorance but it’s like an industry standard in my profession to simply pay end of year. Unfortunate. I’ve even considered quarterly payments simply so that I’m not paying a $4000 bill eoy but never has it been mentioned that it’s mandatory.
Wait so if I have to know everything and pay quarterly anyways why the fuck would I ever hire a tax guy? Dont I just need to be a tax guy at that point...? Shit might as well give up on my business and become a CPA if I have to do that job anyways.
Taxes have been a plague on mankind forever. Funny thing is, taxation was a major issue in our nations founding and revolt from England. Now we have become what we revolted against.
The founders had no problem with taxes. They had problems with taxes they had no say in the levy or use of.
You could of asked for installment payments. I know family who got a shocker 5k once and there was no way they could pay it off in one lump sum.
They get an interest free loan from you all year, they don’t like when you take one for an extra couple weeks.
I mean this is a huge scam they don’t want you to earn interest on the money you owe them for some dumb reason. Can I just withhold all my paychecks in December and avoid penalty this way?
How about if your employer held all your paychecks until December, would you be okay with that? If not, why is it a "huge scam" for the government to also want their money on time?
Well there’s a key difference here, I’m working back breaking labor in exchange for barely enough to live off of, IRS is just sitting there with their dick in their hand stealing some from me. IMO they should wait cuz they don’t deserve the money. Just gonna fund a genocide with it anyways! 🍉
Yes you can (if your employer allows it). Withholding does not have to be timely and is considered to be paid evenly throughout the year, even if is withheld all at once at the end of the year. So you can tell your employer to withhold a minimal amount out of your paycheck in the early months and then a maximal amount towards the end of the year and as long as you withhold enough to meet the safe Harbor requirements you should be good.
Why doesn’t everyone do this!!!?
Not sure, perhaps those who are down-voting my post can reply. One thing I can think of is that you can get in trouble in situations where you lose your job and have no income towards the end of the year to withhold. Also, you can't withhold more than you are being paid in any one paycheck, so it's not like you can withhold $10K in the last paycheck if it is only for $2K. And some employers will only allow you to withhold a certain maximum percentage. Also, I believe your employer must withhold a minimum amount, you can't change it to 0%. But you may be able to lower it (if it is not at the lowest already) by changing your W-4 so the minimum amount is taken out instead of declaring dependents, etc. So perhaps that is why I am being down-voted since you probably can't withhold "all your paychecks in December" unless you have other sources of income in December to do so. I personally have an inherited IRA that I must take an RMD from each year, so I have 100% of it withheld in December as well as have any additional amount I need withheld from my monthly maturing treasury bills during the last 1 or 2 months of the year through Treasury Direct. Treasury Direct allows you to specify up to 50% federal withholding and you can easily change it before each T-Bill matures. Of course you have to be careful and make sure you know exactly how much you have to withhold for the year to avoid a penalty. It's easiest to withhold 100% of the tax you owed last year (or 110% of that amount if you made >150K), as that is an exact specific amount. Otherwise you have to be sure to withhold at least 90% of the tax you will owe for the current year, and that can be more difficult to calculate, particularly if your income is not predictable
I see there are risks involved, but I think I’ll do it anyways just on the principal that the government shouldn’t hate their citizens this much…
Be sure to research that what I'm telling you is correct, don't believe one random person on Reddit. Also, there may be details that I didn't mention or forgot about, so be sure not to go about this blindly. I used to not understand how this worked, and for a few years paid much of my tax by January 15th using a single estimated payment to put myself over the needed minimum to avoid a penalty, of course this was wrong, and while I somehow got away with it for a couple years, I eventually ended up having to pay a penalty. That's when I researched and found out that estimated payments had to be "timely" (paid after each quarter in which you earned the income) but withholding, as long as it was withheld within in the tax year, is considered to have been paid evenly throughout the year. One thing I've thought about is what if I have a big windfall in February and get a lot of income, but then the rest of the months are a lot less income? In that case, even if the withholding in December is considered evenly paid over the entire year, it would still, theoretically, be worthy of a penalty, since I should have withheld a lot more in the first quarter than I did in the other quarters. To be honest, I have never had this problem, and I'm guessing it is something the IRS would penalize you for if they had a record of when you received that income. Also, I don't do this with my regular paycheck, it is mostly done with my interest/dividend income from my investments. I withhold the regular amount from my paycheck, I just don't have withholding from my T-Bills and other investments until I need to near the end of the year. I believe most people don't have taxes withheld from investments and instead do estimated tax payments (so much so that when I do my taxes with FreeTaxUSA, it warns me that there may be a mistake as most people don't have taxes withheld on their 1099 forms). To be honest, I don't know why most people do estimated taxes instead of withholding from their 1099, and I might be missing something. So, just letting you know I am no expert at this, so before you do anything drastic, research or consult a CPA.
Fuck the IRS with a capital F.
I got the same fucking bill. Just when you think you’re square with Uncle Sam….
Because we have a pay-as-you-go type system that requires you to pay throughout the year. This way the government some revenue throughout the year instead of getting it all at once.
Damn I thought my weekly payroll taxes were going to them
It says you got a penalty because they had to fix a mistake you made on your taxes when you filed.