Estimated Tax Payments

[bobbyj]

What's the best thing to do if you missed making an estimated tax payment? (asking for a friend ;))

[seattlecyclone]

Are you self-employed, or do you have a salaried job in your household? My understanding is that the IRS considers all withholding from paychecks to have been made "on time" for the purpose of assessing estimated tax underpayment penalties, so you may be able to increase your withholding from that job to make sure you get enough withheld for the year. Failing that, I'm sure that making a payment sooner is better than later. You may have a small penalty due, but this penalty could continue to earn interest the longer you wait.

[bobbyj]

Thanks, that's very helpful.  I'm employed, but my wife has self-employed income so I can use that trick.

[mr_orange]

The penalties and interest are pretty small.  I purposefully pay my taxes in October to earn more on the float.  Depending on what investments you have access to you may want to consider doing the same. 

[WorkingToBeFIREd]

Hypothetically speaking, I know a "friend" that has skipped the first estimated quarterly tax payment due date for the last two years and just sent two checks at the second due date to get back to current.  This friend then pays the third payment on time, and the fourth early (prior to 12/31) so that all estimated payments are paid within the calendar year.

This friend has yet to get a bill for interest from the IRS.  :)

[bobbyj]

Thanks for passing on you're friend's experience!

[Sibley]

Don't quote me on it, but I think there's some rule or other in the interest/penalty calculations that may let you off the hook. You'd have to go through the rules however.

[StockBeard]

What's the best thing to do if you missed making an estimated tax payment? (asking for a friend ;))

Pay as early as you can. The penalty depends on how late you were, so if you're off by a few days it will probably be nothing

[Jenie]

Not sure whether this applies, but if you are referring to a middle year quarterly payment, as long as it is paid for the entire yr by Jan 15th next year, there should be no penalty.
So, if for 2015 tax year you had a quarterly due 10/15/2015 that is late, it would not matter when deposited as long as it is by 01/15/2016.
Hope this makes sense.

[MDM]

Not sure whether this applies, but if you are referring to a middle year quarterly payment, as long as it is paid for the entire yr by Jan 15th next year, there should be no penalty.
So, if for 2015 tax year you had a quarterly due 10/15/2015 that is late, it would not matter when deposited as long as it is by 01/15/2016.
Hope this makes sense.

Based on http://www.irs.gov/publications/p505/ch04.html, the statement above is not correct.  From that document (emphasis added):

Penalty figured separately for each period.    Because the penalty is figured separately for each payment period, you may owe a penalty for an earlier payment period even if you later paid enough to make up the underpayment. This is true even if you are due a refund when you file your income tax return.

Example.

You did not make estimated tax payments for 2014 because you thought you had enough tax withheld from your wages. Early in January 2015, you made an estimate of your total 2014 tax. Then you realized that your withholding was $2,000 less than the amount needed to avoid a penalty for underpayment of estimated tax.

On January 10, you made an estimated tax payment of $3,000, which is the difference between your withholding and your estimate of your total tax. Your final return shows your total tax to be $50 less than your estimate, so you are due a refund.

You do not owe a penalty for your payment due January 15, 2015. However, you may owe a penalty through January 10, 2015, the day you made the $3,000 payment, for your underpayments for the earlier payment periods.

Is there guidance elsewhere that negates the wording above?

[BlueHouse]

Are you self-employed, or do you have a salaried job in your household? My understanding is that the IRS considers all withholding from paychecks to have been made "on time" for the purpose of assessing estimated tax underpayment penalties, so you may be able to increase your withholding from that job to make sure you get enough withheld for the year. Failing that, I'm sure that making a payment sooner is better than later. You may have a small penalty due, but this penalty could continue to earn interest the longer you wait.

o
This is my understanding as well. My income is fairly stable except for about $50k extra each year. That can come in the beginning of the year, the end of the year, or not at all. I have to estimate correctly and pay 1/4 of the taxes in equal installments (even before I've earned the money) or else I am penalized.
if I estimate too low, The only way out of the penalty per my accountant is to make up the difference in withholding before the end of the year. no amount of additional payment in estimated taxes in October or January will make up for the deficiency. I don't like it, but I do it.

[MDM]

I have to estimate correctly and pay 1/4 of the taxes in equal installments (even before I've earned the money) or else I am penalized.

That seems incorrect.  At least, if you use the "Annualized Income Installment Method" you should be ok if your quarterly "estimated payments plus withholding" match your income for the same quarter.  See Form 2210 - it is somewhat tedious to fill out, but a spreadsheet (or likely any of the popular tax software packages) can handle it easily.

if I estimate too low, The only way out of the penalty per my accountant is to make up the difference in withholding before the end of the year. no amount of additional payment in estimated taxes in October or January will make up for the deficiency. I don't like it, but I do it.

This part is true, but assuming you will notice when you get that extra $50K, you can wait for it, pay the estimated tax at that time, and all should be well.