Penalty for Failure to Pay Quarterly Estimated Tax Payments

Occasionally, clients call and ask why they received a penalty notice for failure to pay quarterly tax payments.  The IRS did not enforce these penalties for a few years, beginning in 2020 due to the COVID shutdowns.  They are clearly now assessing these again.  There is a formula that determines how much and whether you should pay quarterly.  The safest thing is to pay within $1,000 of what you will owe no later than January 15. 

For example:

You owe $5,000 when filing your 2025 tax return.  Divide the $5,000 by 4, and pay quarterly estimated tax payments of $1,250 each.  Alternatively, you could raise withholding to make up for this shortage.

If you do not pay quarterly, then you are subject to a penalty assessment in proportion to the amount of tax you did not pay during the year and/or on a quarterly basis.  Depending on your prior several years of filings, this penalty may be eligible for First-Time Abatement, or forgiveness.