The fourth-quarter estimated tax deadline is rapidly approaching, and failing to meet this deadline can result in unexpected penalties and bills from the IRS. While most individuals have taxes withheld from their paychecks by their employers, those with additional sources of income, such as freelancing, small business ventures, or investment earnings, must make separate payments to the IRS. Failure to do so can lead to financial consequences when it comes time to file taxes in 2024.

Avoiding Late Penalties

The IRS recommends that taxpayers who anticipate a tax liability of $1,000 or more for the year 2023 make quarterly estimated payments. Making the fourth-quarter payment on or before January 16th is vital to avoid potential penalties or unexpected tax bills. By fulfilling these payments, taxpayers can prevent having to pay even more to the IRS on the April 15th tax deadline. Certified public accountant Tom Wheelwright, CEO of WealthAbility, emphasizes the importance of meeting these payments to avoid additional financial burdens.

Missing the estimated tax payment deadline can result in a late penalty of 0.5% of the unpaid balance per month (or partial month), up to 25%. Additionally, interest is applied to the unpaid balance, currently at a rate of 8%. These penalties and interest can quickly accumulate and result in a significant financial burden for individuals.

To avoid underpayment penalties, taxpayers can follow the “safe harbor” guidelines. This entails paying at least 90% of the current year’s tax liability or 100% of the previous year’s taxes, whichever amount is smaller. However, for individuals with an adjusted gross income of $150,000 or more in 2022, the requirement is to pay the lesser of 90% of the current year’s tax liability or 110% of the previous year’s taxes to meet the safe harbor requirement for 2023. Adjusted gross income can be found on line 11 of Form 1040 from the 2022 tax return.

Mark Steber, Chief Tax Information Officer at Jackson Hewitt, stresses the significance of projecting tax liability for the year 2023. By taking the time to assess your tax situation now, you can better understand what is expected of you and plan accordingly. A well-informed tax projection can help you avoid penalties and ensure you meet your tax obligations.

Choosing the Fastest and Easiest Payment Method

With limited time until the deadline, the IRS recommends electronic payments as the “fastest and easiest” option for remitting funds. This streamlined process can simplify the payment process and help ensure timely submission.

Meeting the fourth-quarter estimated tax deadline is crucial to avoid penalties, interest, and unexpected tax bills. By fulfilling your payment obligations, following the safe harbor guidelines, and conducting tax projections, you can ensure you are well-prepared for the tax season ahead. Remember to prioritize timely electronic payments to the IRS to avoid any unnecessary complications.


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