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4 Tips for Avoiding Penalties on Estimated Tax Payments

Posted by Tom Hallissey on Nov 14, 2018 10:00:00 AM

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Lately, the IRS has been issuing more penalties for underpayment of estimated taxes. From 2010 to 2015, there was a 40 percent jump in the number of people who paid these fines. As a result, the IRS is urging all taxpayers to educate themselves about estimated tax payments.

What are Estimated Taxes?

Estimated tax payments are a method of paying income tax for those not subject to the withholding tax. The IRS requires these payments to be made in four equal installments on a quarterly basis.

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Who Pays Estimated Taxes?

While many people pay taxes through withholdings, there are several types of taxpayers who pay in estimated installments.

  • Corporations
  • Sole proprietors
  • Self-employed people
  • Partners
  • S corporation shareholders
  • Individuals who have not had enough tax withheld from their salary or pension
  • Individuals who receive income, such as interest, dividends, alimony, self-employment income, capital gains, prizes or awards

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How to Avoid Penalties on Estimated Tax Payments

Individuals and businesses who underpay income tax can be subject to costly IRS penalties. However, it’s possible to avoid government fines by following these four simple steps:

  1. Don’t underpay your estimated taxes.
  2. If your income is less than $150,000, make sure your tax payments will equal at least 110 percent of last year’s total tax payments.
  3. If you can estimate your income correctly, pay at least 90 percent of the tax owed on your estimated income.
  4. Adjust any withholding of taxes to accommodate your situation.

The Potential Penalties

If you don’t make at least a minimum payment or miss a payment for a certain period of time, you may owe the IRS a penalty.

The IRS’ penalty rate generally differs from year to year. The amount you must pay in fines may depend on your particular circumstances.

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When Estimated Tax Payments are Due

Estimated tax payments are due to the IRS by these dates:

  • January 1 to March 31 must be paid by April 15
  • April 1 to May 31 must be paid by June 15
  • June 1 to August 31 must be paid by September 15
  • September 1 to December 31 must be paid by January 15 of the following year

By making quarterly payments during the year, you can avoid running into problems at tax time. You may be charged a penalty if your estimated tax payments are late, even if you are due a refund.

You can make estimated tax payments either through the mail, online, by phone or with your mobile device. Visit to find out more. If you need help with tax services, contact your local accountant today.

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Topics: Tax Season

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