Estimated Tax Payments

Who Must Pay Estimated Taxes?

You must make estimated tax payments if BOTH are true:

1. You expect to owe $1,000 or more at tax time

(after subtracting withholding & refundable credits)

2. Your withholding covers LESS than:

• 90% of your current year tax liability, OR

• 100% of your prior year tax liability

  (110% if your prior-year AGI was over $150,000)

These are the IRS “safe harbor” rules that prevent penalties.

Common taxpayers who need to pay estimated tax:

• Sole proprietors (Schedule C)

• Partners & S-Corp shareholders (K-1 income)

• Real estate investors

• Investors with dividends, interest, capital gains

• Contractors & gig workers

• Anyone without sufficient W-2 withholding

Corporations (C-Corporations)

Must pay estimated tax if they expect to owe $500 or more for the year.

Which Form to Use

Use Form 1040-ES for individuals to calculate and pay estimated taxes. 

C-Corporations use Form 1120-W. 

S-Corp shareholders generally pay tax on their individual returns using Form 1040-ES

Penalties for Underpayment of Estimated Taxes

If you underpay your estimated taxes, the IRS may impose penalties, even if you are due a refund when you file your return. Here's an overview:

1. Penalty Calculation:

   • The penalty is calculated based on the amount of the underpayment, the period it was underpaid, and the IRS interest rate for underpayments (which changes quarterly).

2. Safe Harbor Rules to Avoid Penalty:

   • You can avoid penalties if you pay at least:

     • 90% of the current year’s total tax liability, or
     • 100% of the prior year’s total tax liability (110% if your prior year’s adjusted gross income was over $150,000).