18.4 Estimated Tax Payments
Key Takeaways
Required if expecting to owe $1,000+ after withholding/credits.
Due dates: April 15, June 15, September 15, January 15.
Safe harbor: 90% current year OR 100% prior year tax.
High-income (AGI >$150k): Must pay 110% of prior year.
Underpayment penalty calculated on Form 2210.
Annualized income method available for seasonal businesses.
Why This Matters for the Exam
Estimated tax is tested every exam. Know the due dates, safe harbor rules, and high-income exception.
Who Must Pay?
You must make estimated tax payments if:
| Requirement | Threshold |
|---|---|
| Expected tax owed | $1,000 or more |
| Withholding/credits | Less than 90% current year OR 100% prior year |
Quarterly Due Dates
| Period | Income Period | Due Date |
|---|---|---|
| 1st | Jan 1 - Mar 31 | April 15 |
| 2nd | Apr 1 - May 31 | June 15 |
| 3rd | Jun 1 - Aug 31 | September 15 |
| 4th | Sep 1 - Dec 31 | January 15, 2026 |
Safe Harbor Rules
To avoid penalty, pay at least:
| Test | Requirement |
|---|---|
| Current year | 90% of current year tax |
| Prior year | 100% of prior year tax |
| Meet either | Safe harbor satisfied |
High-Income Exception
| Prior Year AGI | Safe Harbor |
|---|---|
| ≤$150,000 | 100% of prior year |
| >$150,000 | 110% of prior year |
| MFS >$75,000 | 110% of prior year |
Safe Harbor Example
| Item | Amount |
|---|---|
| 2024 tax liability | $10,000 |
| 2024 AGI | $180,000 |
| 2025 estimated tax requirement | $10,000 × 110% = $11,000 |
Underpayment Penalty
| Feature | Rule |
|---|---|
| Calculation | Form 2210 |
| Rate | IRS interest rate (quarterly) |
| Per quarter | Penalty calculated separately |
| No forgiveness | Late Q1 not fixed by early Q4 |
Annualized Income Method
For seasonal businesses or businesses that start mid-year:
| Feature | Benefit |
|---|---|
| Form | Form 2210, Schedule AI |
| Effect | Base payments on actual income each period |
| Example | Business starts in October—no Q1-Q3 payments required |
Special Rules: Farmers and Fishermen
| Rule | Description |
|---|---|
| Single payment | One payment by January 15 |
| Alternative | File return and pay by March 1 |
| Threshold | ≥2/3 of gross income from farming/fishing |
Real-World Scenario
Scenario: Taxpayer expects to owe $8,000 for Tax Year 2025. Prior year tax was $6,000. Prior year AGI was $140,000.
- Current year 90%: $8,000 × 90% = $7,200.
- Prior year 100%: $6,000.
- Safe harbor: Pay at least $6,000 (lesser of two tests).
- Quarterly payments: $6,000 ÷ 4 = $1,500 each quarter.
High-Income Scenario
Scenario: Prior year tax $50,000. Prior year AGI $200,000.
- Safe harbor: 110% of prior year = $55,000.
- Quarterly payments: $55,000 ÷ 4 = $13,750 each quarter.
On the Exam
Question types to practice on estimated taxes:
- Due Date Questions: "When is Q3 estimated tax due?"
- Safe Harbor Questions: "What is the safe harbor for AGI >$150k?"
- Threshold Questions: "What triggers estimated tax requirement?"
The key is to remember: $1,000 threshold. Due Apr 15, Jun 15, Sep 15, Jan 15. Safe harbor = 90% current OR 100% prior. High-income = 110% prior.
Taxpayer expects $5,000 tax. Prior year was $4,000, AGI $100,000. Minimum safe harbor payment?
$4,500
$4,000
$5,000
$3,600
Prior year: AGI $200,000, tax $40,000. Minimum estimated tax for current year under prior-year safe harbor?
$40,000
$44,000
$36,000
$200,000
When is the 3rd quarterly estimated tax payment due?
August 15
September 15
October 15
January 15
Sections you finish are checked off in the contents.