When does the IRS Require Quarterly Estimated Taxes

My opinion - that offer, the one I see at the end of the stack of PDFs when I see the return I filed electronically, is useless. A W2 employee can certainly use the form, but respectfully, why bother? "I owed $2000"? Fine, that's the tax on about $10K (say) so decrease the exemptions by 5. That's the old process, I haven't paid much attention to the new W4. If the allowances were already 0, just tell W4 to withhhold $40 more per week.

On a personal note, when I took over my In-Laws's finances, I realized my father in law was filing quarterly tax payments. They were retired, and I explained I'd have money withheld from their IRA withdrawals. They were so used to the quarterlies, it took me some time to explain there was no need. We had money withheld from their quarterly withdrawals, and all was well.

Me? I have the entire tax bill withheld on the Dec 15th withdrawal. And Haven't gotten any nastygram from the IRS. Retired in 2012, I figure if it was an issue I'd have heard by now.

The IRS never steps in and *forces* you make estimated payments. It just penalizes you for not making the required timely tax deposits. If you can meet one of the exceptions, you can pay later, otherwise you are expected to pay as you go.

Ira Smilovitz, EA Leonia, NJ

In a year when you have extra income, you might want to consider increasing your withholding to cover the additional income instead of making quarterly estimated tax payments. You can use the Tax Withholding Estimator on the IRS web site (link below) to figure out what to put on your W-4. Remember to recalculate it again in January.

The new W-4 form doesn't use allowances. The Tax Withholding Estimator will tell you what to put on your W-4.

Tax Withholding Estimator:

This makes it seem that there are two binary choices: either increase withholdings or make quarterly payments. From one of the other responses, it seems the third choice is basically do nothing and pay the penalty when filing the annual return in April. If this is just an occasional thing because the taxpayer had some unexpected income during a random year, couldn't it be that the penalty is small enough that it might offset the inconvenience of the other two choices?

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Sure. The penalty is currently 5% per year, from the date the tax should have been paid until the date it actually was paid. If the underpayment is a small amount, or if it's not very late, the penalty isn't very much.

They had nothing to complain about when the extra income happened, because they didn't know how much you would owe at the end of the year. And they had nothing to complain about afterward, because you paid the penalty.

The IRS (the law) _does_ require that, in the sense that if you don't do it you have to pay a penalty. I don't know what other sense of "require" and "step in" you might mean -- certainly the IRS will not take money from your bank account in 2020 to pay 2020 taxes, or even send you a letter -- again, they don't know what your final tax liability will be.

By the way, if you have unexpected income you don't have to just wait till the end of the year and then pay a penalty. Since you have income tax withheld at your job, you can just file a new W-4 form with your employer to increase your withholding so that it will meet one of the safe harbor requirements, two of which you cited; Bob Sandler has already given you a link to the IRS's withholding estimator. Then file a new W-4 in January to bring your withholding back again.

In any case, there's no need to worry if you don't owe more than $1000 above your withholdings. It's not necessary to adjust your withholding to cover your whole tax liability, only to cover it within $1000.

Is there an advantage to adjusting withholding versus paying estimated taxes? Yes, there may be. Estimated taxes _must_ be paid evenly throughout the year to avoid a penalty, unless you use form

An alternative for a one time windfall is just to write ONE check to the IRS as a quarterly estimated payment when the windfall is received. Done.

Is there an easy way to decide the amount to pay with the "ONE check" when the windfall inconveniently arrives as a lump sum during the last tax quarter?

Straightforward approach: figure out what tax you will owe, figure out what tax you will have withheld, subtract, and subtract another $1000.

Shortcut: if the amount withheld is at least as much as the tax you owed in the previous year, there's no penalty so you don't need to write a check.

My shortcut, assuming your withholding is correct:

Multiply your windfall by your marginal tax rate (noting if you will fall into a higher tax bracket), and round up a healthy amount.