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Penalty for Paying Quarterly Estimated Tax Payments Late

Written by Nickel - 50 Comments

Yikes! I just realized that I forgot to pay the 4th quarterly installment of our 2008 estimated taxes, which were due on January 15th. After the initial panic subsided, I did a bit of digging and was relieved to find out that it’s really not a big deal. Here’s the straight dope from Fairmark.com:

Penalty for Underpayment

What happens if you don’t pay enough, or don’t pay soon enough.

If you don’t pay enough estimated tax, or don’t pay on time, you’ll have to pay a penalty. It’s best to avoid this penalty, of course â€” but you don’t have to lose sleep over it. The penalty is equivalent to nondeductible interest on the amount you underpaid, for the period of the underpayment. If you underpay only a small amount, or you correct the underpayment quickly, the penalty will be small.

Based on that, it looks like we’ll be on the hook for two days of interest, which shouldn’t be a big deal. In fact, I’ve heard that the IRS doesn’t even bother billing for this if the amount is small enough. That makes sense, I guess, as it costs them money to print and mail an invoice and then handle the payment when it comes in.

Note that you’re exempt from penalties on a late Q4 payment if you’ve already paid in at least as much as your previous year’s total tax bill, or if you file your taxes and pay the full amount due by February 2, 2009.

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Published on January 16th, 2009
Modified on June 23rd, 2011 - 50 Comments
Filed under: Self Employment, Taxes

About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

50 Responses to “Penalty for Paying Quarterly Estimated Tax Payments Late”

1
poor boomer Says:
January 17th, 2009 at 12:22 am
It is my understanding that if you also have wage and/or salary income from which taxes are withheld, you can ‘catch up’ your tax payments by having additional taxes withheld by the end of the year.

Of course, you can’t use that method of catching up if your 4Q estimated tax payment is late, but you could do that for to cover taxes for the first three quarters.
2
mbhunter Says:
January 17th, 2009 at 2:49 am
I feel for you.

It’s strange. Bigger losses don’t bother me as much as these little annoying things.
3
Anon Says:
January 17th, 2009 at 10:55 am
I’ve sent these in late once or twice (a day or so late, nothing huge), complete with checks that were dated late (just to show that I wasn’t trying to mislead them).

Nothing ever came of it. Maybe they realize people make mistakes?
4
Friend Says:
January 17th, 2009 at 2:35 pm
If you file your 1040 and pay the full tax bill by Feb 2, 2009 (normally January 31, but different this year due to the weekend), you don’t have to pay a penalty. Check out page 3 of IRS Pub 509 under the January 15 heading for the calendar. This is only true for a late January 15 payment.
5
Aaron Says:
January 17th, 2009 at 3:10 pm
Don’t sweat it, Nickel. If Timothy Geithner can get away with tax evasion and still get appointed to the top of the Treasury, then what have you and I got to worry about? Right?
6
Mary Says:
January 17th, 2009 at 4:53 pm
To me, having to fill out an extra government form is penalty enough! I’d rather pay more than fill out those forms!

I’m sorry this happened to you!
7
Stacey Says:
January 18th, 2009 at 8:22 am
Heh. Form 2210 isn’t fun, but it’s not that bad. If you file your estimated taxes on an annualized method (for variable income), you have to use the form every year.

We use H&R Block’s free-file online, so it’s just a few more steps that the program walks us through.
8
Beyond Paycheck to Paycheck Says:
January 19th, 2009 at 8:34 am
You don’t have to complete Form 2210 just for this reason. If the IRS has an issue with your late payment, they will propose the interest charge to you. If you disagree, you can then fill out Form 2210 then. As anon says above, if it’s a relatively small amount for a small period, odds are that you never hear anything about it. Save your time. Form 2210 is not fun to do by yourself.
9
Start-Up Says:
January 19th, 2009 at 12:14 pm
Isn’t this penalty really only an issue if your estimated tax payments don’t meet 100% of 2007’s taxes? If so, and you have already paid the amount of 2007’s taxes in the previous three quarters, then you’re off the hook.
10
nickel Says:
January 19th, 2009 at 12:41 pm
Start-Up: Correct. But… We had a major uptick in income, and I’ve only been paying enough to achieve safe harbor (i.e., an amount equal to 2007 taxes) while sitting on the difference. So for us it matters.
11
Friend Says:
January 19th, 2009 at 1:51 pm
Hello! Read IRS Pub 509. Your post and most of the comments above are based on an incorrect understanding of the law.
12
nickel Says:
January 19th, 2009 at 3:13 pm
Friend: How so?
13
Friend Says:
January 19th, 2009 at 8:09 pm
The late penalty does not apply to the January 15 payment if you file your 1040 and pay any tax due by February 2. (Normally that would be January 31; but the weekend delays it 2 days.) All other payments have to have been made on time. This “exception” is only for the January 15 payment.

This information is found in 2 paragraphs on page 3 of IRS Publication 509. The first paragraph is under the January 15 date:

“Make a payment of your estimated tax for 2008 if you did not pay your income tax for the year through withholding (or did not pay in enough tax that way). Use Form 1040-ES. This is the final installment date for 2008 estimated tax. However, you do not have to make this payment if you file your 2008 return (Form 1040) and pay any tax due by February 2, 2009.”

The second paragraph is under the February 2 date:

“If you did not pay your last installment of estimated tax by January 15, you may choose (but are not required) to file your income tax return (Form 1040) for 2008 by February 2. Filing your return and paying any tax due by February 2 prevents any penalty for late payment of the last installment. If you cannot file and pay your tax by February 2, file and pay your tax by April 15.”

Notice that the second paragraph clearly states that doing this prevents any penalty for the late payment of your January 15 estimated taxes.

So, you’re off the hook if you can file and pay by February 2! No nasty Form 2210 and no penalties!
14
My Dollar Plan Says:
January 20th, 2009 at 12:29 pm
nickel, I was going to suggest using the annualized income method, or the actual paid date method to reduce the penalty in case you paid some extra earlier in the year… but I see you were using the safe harbor, so it probably won’t help. You could always fill out the 2210 just to see if it is less.
15
Zach Says:
January 31st, 2009 at 2:18 am
I have the same problem and am trying to file my income tax return (Form 1040) for 2008 by February 2, with one exception – I did not have any 1099-MISC income until the 4th quarter. I am using TurboTax and it thinks I under-paid my taxes and included a penalty. It did suggest me annualize it to reduce the penalty.

How do I make TurboTax know that I did not have any 1099-MISC income in the first 3 quarters?

Many thanks in advance!
16
Ed Says:
February 12th, 2009 at 10:48 am
Nickel, pay your 4th quarter of 1/4 of last year’s tax late. The late interest is zilch (about 14 cents per day per $1,000 of installment amount) compared to the interest you could earn by not paying your taxes in February instead of April (also about 14 per day per $1,000 at 5%).

Also, Zach: If you owe a penalty and opt to use TT’s Annualized Income Method form 2210 Schedule AI, it will ask you for your income by quarter. Or you could download a form 2210AI calculator from the web in case TT doesn’t figure it right.
17
me Says:
May 27th, 2009 at 2:03 pm
OK, I owe $2200 in estimated taxes on June 15. I don’t have that money.

Should I:

1. Pay with a credit card check and get horrendous amounts of interest

2. Not pay it at all and pay the fine later

or

3. Pay the $1500 that I can right now and work it out later?

If I do #2 or #3, does it work out in the end? Will I just pay more in taxes on April 15?

thanks.
18
Peter Says:
May 30th, 2009 at 2:52 am
Me–don’t pay if you can’t conveniently. You’ll pay the IRS 5-7% interest as penalty–much less than you’ll pay on your credit card.

In these times of rising stocks, I’m skipping my June quarterly payment, in favor of betting on the stock market. Of course when I did that in 2001 I lost big time…But that was an official bubble, not a recession.
19
me Says:
May 30th, 2009 at 3:11 am
So, it’s ok to pay the April, September, and January payments but skip June if I don’t have the money? Or if I skip one, should I skip them all because I’ll get a penalty anyway?

I’m so glad to find this discussion. I know people who have skipped ALL their quarterly payments but no one who’s had trouble paying just one.
20
Peter Says:
May 30th, 2009 at 12:15 pm
Yes–it’s okay to skip a payment. The penalty is basically an interest rate based on the number of days it’s outstanding. No “10% late penalty” like you get if you don’t pay taxes at all.

It’s hard to find the current rate, but someone indicated that it’s 5% now. It was 8% in 2000, so plan on 8% and you’ll be safe. In any case it’s 2-3 times the return on a money fund–so it’s best to pay quarterlies unless the money will cost you 10% or more (lost) annual interest. Paying off credit cards is clearly better than prepaying taxes.
21
tsk Says:
November 10th, 2009 at 10:44 pm
So, I’m trying to figure out what to do with missing my September 15th payment and realizing now 2 months later! Do I send in the Sept 15 voucher with the total payment or skip payment and double the payment due on next payment (adding Sept & and next payments together)? HELP. I can’t believe I totally forgot about quarterly tax payments (Kentucky AND Federal)!
22
ed Says:
November 10th, 2009 at 11:31 pm
Paying an installment late produces a penalty of 4% simple interest for the time it is late.

ed
23
tsk Says:
November 11th, 2009 at 9:54 am
so, I should pay per the voucher now and “they” will let me know what the penalty is later? Or do I need to figure 4% and add it to my payment now?
24
ed Says:
November 11th, 2009 at 10:14 am
Don’t add any interest. They may not notice you’re late, but they will bill you for it after they get your return. You may not owe as much as you think and a small amount can usually be eliminated by completing the Annualized Income form 2210 Schedule AI.

ed
25
tsk Says:
November 11th, 2009 at 12:52 pm
THANK YOU SOOO MUCH FOR YOUR HELP! I’ll be mailing it in today
26
Peg Says:
June 5th, 2010 at 10:48 pm
I file a 1099. I am in sales so each quarter is different in my income. Can I just pay my quarterly taxes on what I earn each quarter? Or does it have to be based on the previous years average?
27
Ed Says:
June 6th, 2010 at 12:56 am
That doesn’t work too well. It’s easier to calculate the annualized amount, which will almost certainly be less than computing each quarter seperately.

If your income is increasing each year, paying 1/4 of last year’s tax each quarter is the way to go, and you don’t have to pay the differnce until next April 15th

ed
28
Peg Says:
June 6th, 2010 at 7:21 am
Your answerto my last question stated: If your income is increasing each year, paying 1/4 of last yearâ€™s tax each quarter is the way to go, and you donâ€™t have to pay the differnce until next April 15th.
That makes sense.
Now is this based on gross or net income?
29
Tom Says:
August 1st, 2010 at 6:30 pm
I forgot to pay the June 15th payment — coincidentally, I am right in between the June and Sept payments.

If I make both payments now do I get credit for making the Sept payment early ?? and avoid any interest ???
30
ed Says:
August 2nd, 2010 at 8:22 pm
NO you’ll still geet a penalty for the late payment and nothing for paying the next one early;.
ed
31
Wordplay Says:
September 13th, 2010 at 3:06 pm
If I pay all 4 quarterly payments in one lump early can I avoid a penalty? If not, how do I know what the penalty is and how do I make good on that?
32
ed Says:
September 13th, 2010 at 3:56 pm
If the lump sum is 100% of last year’s tax (110% if AGI over $150K last year) or 90% of final current year’s tax, no penalty.

Any penalty will be 4% (this year) simple interest on the amount of any late or underpayment.

The IRS will bill you for any penalty. You only have to actually pay it with your return if you are using the Annualized Income Method for figuring installments. ed
33
Mr. Ooops Says:
October 3rd, 2010 at 9:49 am
Adding to what Mr. Wordplay asked…This is my first year of living overseas, I get paid gross and I haven’t paid a cent of taxes in 2010 (I’ve been accruing the tax liability with the false assumption that I’ll pay everything b4 April 15). I Just found out I had to pay estimated taxes to avoid penalties (oops!).

So based on Ed’s response, the only way to eliminate a penalty is to pay 110% of last year’s tax liability before Jan 31st, 2011?? which forms do I need to fill and should I simply do this via the IRS internet website?
Thanks to all for your help, this site is extremely helpful!
34
cj Says:
October 18th, 2010 at 5:38 pm
The 4% interest is 4% of the quarterly amount no matter how late it is? Say 2 days versus a month and the payment is $2500, what would the penalty be?
35
ed Says:
October 18th, 2010 at 10:30 pm
FIrst: Simple Interest at the current rate of 4% annually is charged on underpayments and late payments, on the amount underpaid for the amount of time it is late.
Second: If you pay an installment in January there will be a penalty for not paying 1/4 of it last April, 1/4 of it last JUne, and 1/4 last September.

ed
36
Terry Says:
October 19th, 2010 at 8:31 pm
Ok…question. My husband and I have W-2 income as well as a side business. We have been using the “safe harbor” method and not paying quarterly taxes (we just up our withholding on W2 income)….BUT our business had some large unexpected growth in the last month and now we can’t withhold enough from our W2s thru the of the year to cover what we will owe in taxes (we have to do the 110% of last year or 90% of this years).

We have the money for taxes sitting in a bank account. Can we still avoid fees/interest if I just make one lump sum quarterly amount to get us to 110% or will that just make it worse?
37
ed Says:
October 20th, 2010 at 9:52 am
If you withhold the amount of last year’s tax (or 110% of it) you will have no penalty until your full taxes are due next April. See page 1 of IRS form 2210 for how this works. DO NOT pay an installment!!

ed
38
Brian scott Says:
October 27th, 2010 at 8:05 pm
In a boneheaded move I realized I forgot to send the voucher with the quarterly tax checks (I left it on my scanner bed) for both state and federal. Before you slap me on the wrist, what should I do?
39
Barbara Mayer Says:
November 4th, 2010 at 11:45 am
I lost my job July 2009 and have been freelancing for entire year of 2010. This is so new to me. I have not paid any quarterly taxes for 2010, because I did not know what my income would be. Should I pay the full amount for my federal taxes on the January 15 quarterly. Will this eliminate the penalty? My accountant figures out the Self employment taxes when he does my taxes in February, and I usually pay what’s owed when I send in my taxes to IRS in April.
Should I send the full Fed. Taxes I owe on the Jan 15 fourth quarter? Thanx
40
Robin Says:
January 4th, 2011 at 11:48 am
Brian, if you noted the form #, the tax year, and your ss# on the check (as you are suppose to do), then it shouldn’t be a prob.
41
Tracy Self Says:
March 1st, 2011 at 2:40 pm
I made more last yearthan I did the year before and more then I am making right now. My new quarterly tax payments are going to kill me. What can I do?
42
Daniel Says:
April 18th, 2011 at 12:54 pm
I think I made a mistake on my taxes and as a result it is asking me to pay estimated taxes. My husband lives in one state and I in another, his job also moved him to another state. In doing our taxes i noted that he made no income from the new state his job moved him to because its showing him as a non-resident collecting income and I could not file electronically.
the estimated taxes total 220 for each quarter. What should I do? Can i amend the taxes or should I pay?
43
Amy Says:
April 19th, 2011 at 1:56 pm
I started working from home Sept. 09, made about $5,000 for the year. Last year I made $18,000. I didn’t pay any taxes on the $5,000 and I haven’t paid any quarterly taxes for 2010. I calculated I owe $360 in quarterly taxes, but I missed the dead line. What do I do now? How do I get set up to pay these? I have filed an extension for this years taxes.
44
ed Says:
April 26th, 2011 at 10:30 pm
Amy: I presume by “made” $18,000 that’s your net after all expenses for a self employed business.

From that your standard deduction is $5,700 if you are single and no dependents and $3,500 for 1 exemption for a net taxable income of $8,800 taxed at 10% or $880.

But you also owe SE tax of 15.6% on the full $18.000, or $2,908 for a total of$3,796. Actually you’ll get a deduction for 1/2 the SE tax or $1,454 lowering the total tax by $145 to about $3,650.

You could lower it further if you paid for any Health Insurance (see deduction for 1040 line 29)

BUT since you paid no tax for 2009 you don’t have to pay quarterly installments. The extension you filed is for the filing form 1040, not the tax, which is due April 18, so send it in as soon as possible to reduce any penalties.

You’ll owwe installments for 2011 of 1/4 of whatever your 2010 tax finally is. Get form 1040ES for the 4 vouchers you’ll need
45
ed Says:
April 26th, 2011 at 10:38 pm
Tracy: Your quarterly installments this year will be less than 1/4 of last year’s tax because your income is declining so they won’t hurt you as much as last year’s tax hurt. Normallly you’d pay 1/4 of last year’s tax each qurter, but useing form 2210 and its Schedule AI will reduce the required payments without a penalty. IRS Publication 505 tells you how to do that (or the form 2210 instructions). It gets complicated but no moreso than filling in a form 1040 using your actual income for each period instead of a full year.

ed
46
Sue Says:
June 16th, 2011 at 6:03 pm
Hello,

I paid the 2nd qtr estimated tax 1 day late. It is post marked June 16, 2011. Do you think we will be assessed a penalty for 1 day late. And if so, would it be simple interest (example 6% annually). Example $100,000 estimated tax due June 15, 2011, paid 1 day late – 100,000 x 6% x 1/365 = 16.66. Am I thinking correctly here. Thank you for your time.
47
ed Says:
June 20th, 2011 at 11:16 pm
Your approach is correct,but they only charge 3%, or 8.33.They\\\’ll probably ignore it. You won\\\’g know until some months after filing your 2011 return.

ed
48
edwin Says:
September 15th, 2011 at 1:12 am
Hi,

I’ve started working as a 1099 independent contractor for the first time from 08/01/2011. I havenâ€™t received a check or any payment at all yet from the company I have been hired as a contractor. Do I still have to pay quarterly taxes for this upcoming 09/15/2011?

Edwin
49
Jesse Says:
December 14th, 2011 at 12:01 pm
I haven’t paid any estimated tax and want to do so now for the past quarter of sept. 11.
Is it a problem or just do it.
50
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May 7th, 2013 at 9:05 pm
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