Avoid penalty on underpaying estimated tax payments

The penalty is not imposed when:

-Actual tax liability for the current year is less than $1,000

-No tax liability was incurred in the prior tax year

Estimated tax payments should be made in quarterly installments that are due by:

-April 15 / June 15 / September 15 / January 15 of the next year

Each installment must be at least 25% of the lowest of:

-100% [110% if AGI > $150,000 ($75,000 for MFS)] of the prior year’s tax

-90% of the current year’s tax

-90% of the annualized current year’s tax (when income is uneven)

Ways to prevent incurring penalty on underpaying estimated tax payments are:

-Roughly estimate your current year income and income tax based on tax brackets.

-Update your W4 with your employer’s HR department to adjust your income tax withholding per paycheck.

-Make estimated tax payments through web payment when expecting to incur large capital gain at certain point in time.

-Please refer to the link for 2024 tax brackets: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024

-Please refer to the link for more details on penalty for underpayment of estimated tax: https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes