Safe harbor rules , estimated quarterly taxes

[engr]

One of the conditions for safe harbor states if you paid 100% of your tax liability from the previous year you are safe from under estimating this years taxes. Does this mean that if I received a refund on last years federal taxes ( tax liability equal zero) that I will not be penalized if I under estimated on this years taxes since 100% of 0 is 0 ? If my interpretation is incorrect can I still submit a fourth quarterly payment ?

 

[clobber]

Not really a tax guy, but:

Tax liability has nothing to do with getting a refund or not. Tax liability is your "total tax" from line 16 on the 1040.

In other words, you might have had $25K withheld from your pay throughout the year. When you go to file your taxes, you discover you really only should have paid $20K. So you get at $5K refund. $20k is your tax liability and is what you should have withheld the following year to meet safe harbor.

 

[Jerry1]

From the IRS:

Required Annual Payment— Line 12c
On lines 12a through 12c, figure the total amount you must pay for 2020, through withholding and estimated tax payments, to avoid paying a penalty.

General rule. The total amount you must pay is the smaller of:
90% of your total expected tax for 2020, or
100% of the total tax shown on your 2019 return. Your 2019 tax return must cover all 12 months.


Special rules. There are special rules for higher income taxpayers and for farmers and fishermen.
Higher-income taxpayers. If your AGI for 2019 was more than $150,000 ($75,000 if your filing status for 2020 is married filing separately), substitute 110% for 100% in (2) above. This rule does not apply to farmers and fishermen.
For 2019, AGI is the amount shown on Form 1040 or 1040-SR, line 8b.

https://www.irs.gov/publications/p505#en_US_2019_publink1000194625

 

[audreyh1]

One of the conditions for safe harbor states if you paid 100% of your tax liability from the previous year you are safe from under estimating this years taxes. Does this mean that if I received a refund on last years federal taxes ( tax liability equal zero) that I will not be penalized if I under estimated on this years taxes since 100% of 0 is 0 ? If my interpretation is incorrect can I still submit a fourth quarterly payment ?

No - your tax liability is what you owed in taxes and has nothing to do with any refund.

Note: If your prior AGI was > 150K then the rule is 110%.

 

[scrabbler1]

Don't forget another safe harbor - if your total expected tax liability is less than $1,000 (after subtracting withholding and tax credits).

I have qualified for various safe harbor rules over the years, the most common during my working years was to be 90% in (i.e. withheld). If I had an unusually good year, such in late 2008 when I cashed out the company stock and saw my income rise a lot compared to the year before, then all I had to do was to make sure I had paid in at least as much as my total tax liability from the previous year. Taxes on the huge windfall part I could wait to pay in April.

In more recent years in ER, my total expected tax liability was under $1,000, so even with no withholding I didn't need to make any estimated tax payments.

 

[audreyh1]

I have qualified for various safe harbor rules over the years, the most common during my working years was to be 90% in (i.e. withheld). If I had an unusually good year, such in late 2008 when I cashed out the company stock and saw my income rise a lot compared to the year before, then all I had to do was to make sure I had paid in at least as much as my total tax liability from the previous year. Taxes on the huge windfall part I could wait to pay in April.

Yep, did this a couple of times.

 

[Trooper]

Safe Harbor 10% Rule

Note: If your prior AGI was > 150K then the rule is 110%.

Anyone know why this is? DW asked me and all I could think of was "because they can". I guess the IRS assumes that the greater your income, the less accurately you can estimate?

Did a Google search and and a forum search and couldn't find anything.

 

[audreyh1]

I think it could be that they are thinking higher income folks are more likely to have big jumps in income? Then it’s because they can.

I’ve never seen an explanation.

 

[OldShooter]

Did someone tell you that this was going to be fair?