Do I have to pay estimated taxes?

Created by Shubha Bisht, Modified on Wed, 24 Jan 2024 at 12:30 PM by Shubha Bisht

According to the IRS, if you are expected to owe $1,000 or more in taxes, (even after withholdings from your paycheck) you’re generally expected to pay estimated taxes.

I get W-2 income and I have taxes withheld automatically. Why would estimated taxes matter to me?

Generally, a person who has W-2 wages has withholding from their paycheck to cover tax payments on time. If the right amount is being withheld, then the estimated tax payments are already happening and the taxpayer is good to go.

However, if the withholdings are too low, then the withheld amount doesn't cover the estimated tax payments. This means the taxpayer could be subject to underpayment penalties.

Note: if all of the following are true, you don’t have to pay estimated taxes for the current tax year:

You have no tax liability for the prior year
You were a U.S. citizen for the full year
Your prior year tax period was for a 12-month period (no partial tax periods)

If you suspect or have confirmed with an accountant that your withholdings are too low, you will need to pay estimated taxes or update your W-4 with your employer.

How can I have penalties for not paying estimated taxes waived?

Penalties for not paying estimated taxes may be waived if one of the following are true:

You failed to pay due to a disaster or unusual circumstance out of your control and it would be unfair to issue a penalty.
The IRS may be able to remove or reduce some penalties if you acted in good faith and can show reasonable cause for why you weren’t able to meet your tax obligations.

Additional Resources:

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