Are you familiar with the estimated tax deposit requirements?
Estimated tax is the method used to pay tax on income that is not subject to withholding. Taxpayers must make estimated tax payments if you expect to owe at least $1000 in tax after subtracting your withholding and credits, and you are required to pay the lessor of:
- 90% of the tax to be shown on your current year tax return, or
- 100% of the tax shown on your previous year tax return.
For higher income taxpayers, if your adjusted gross income for the previous year was more than $150,000, you will have to deposit the smaller of 90% of your expected tax for the current year or 106% of the tax shown on your previous year tax return.
The taxpayer will be subject to a mandatory estimated tax penalty if the estimated tax payments are not made. The penalty for underpayment of estimated tax is the only civil penalty imposed with respect to estimated obligations. There is no penalty for failure to file a declaration or for underestimation as such. IRC Section 6651(e)