This can help if you have trouble not touching the money you set aside for quarterly estimated tax payments. If you don’t fall into the W-2 employee with no other income bucket, you might have to make quarterly estimated tax payments. If you’re self-employed, you need to make federal estimated tax payments each quarter.

As you can see, these safe harbor rules are based on how much you owed the previous year. We wish starting a therapy practice in Washington was as simple as getting a few clients and slapping an “open” sign on the door. From insurance and licenses to accounting estimated tax software, you’ll have a lot of ducks to keep in a row. Regardless of your situation, the best time to take action is now. Take a deep breath, understand that there is no changing the past, and do what you can to minimize the damage starting now.

How Can You Determine If You’re at Risk of Underpayment?

This alternate way of calculating your quarterly tax payments lets you pay less when you earn less — without underpayment penalties. If you don’t pay your estimated taxes on time (or if you don’t pay enough), the IRS can charge you a penalty. The amount you owe increases the longer you go without payment.

This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year. The calculations can get complicated quickly, so it’s a good idea to consult with a qualified tax preparer if you have questions. Plus, there are special rules for farmers, fishermen and certain household employers.

Seeking Advice from Tax Experts on Underpayment Issues Avoid an Underpayment Penalty

Corporations must deposit the payment using the Electronic Federal Tax Payment System. For additional information, refer to Publication 542, Corporations. If you believe you meet the criteria, mail a statement signed under penalty of perjury that describes how our erroneous written advice resulted in the penalty.

We send you a notice if you owe the Underpayment of Estimated Tax by Individuals Penalty. For more information, see Understanding Your IRS Notice or Letter. If the due date falls on a Saturday, Sunday, or legal holiday, it will be due the following business day. Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant. You’ll submit the form along with a statement explaining why you weren’t able to make your payments during the specific time period you want a waiver for. If you fall into any of those three categories, you’ll have to calculate your penalty yourself.

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