Dufour Tax Group, LLC

Dufour Tax Group LLC specializes in providing comprehensive strategic tax planning and compliance services to individuals and businesses across the globe. With a broad set of in-house skills and experience, we have the flexibility to work with a multitude of clients – from startups to multimillion

215 Commercial Street Portland, ME, 04101 United States

Dufour Tax Group LLC specializes in providing comprehensive strategic tax planning and compliance services to individuals and business across the globe.

With a broad set of in-house skills and experience, we have the flexibility to work with a multitude of clients - from startups to multi-million dollar enterprise-level companies.

Estimated Tax Payments

February 06, 2023  /  Kelly Dufour

As the 2022 tax season is now upon us, many taxpayers have questions about estimated taxes and underpayment penalties. It is important for all taxpayers to understand their respective tax liabilities and how they are impacted by income levels, filing status, payment dates, and other variables. While it’s important to work with a tax advisor to address your unique situation, there are general rules that all taxpayers should be aware of.

Any taxpayer who expects to owe at least $1,000 when filing their federal income tax return, and who also had a tax liability in the prior year, may be required to make quarterly estimated tax payments. While this most often affects individuals who have significant investment or self-employment income, it can also capture W-2 recipients who simply didn’t have enough withholding throughout the year. Taxpayers who fail to pay in enough during the year to reach the “safe harbor” threshold will be assessed interest and penalties on any remaining balance due when filing their return or extension in April.

 To reach that safe harbor threshold, the IRS requires that most taxpayers have paid in an amount equal to at least 90% of their current year’s tax or 100% of their previous year’s tax—for taxpayers whose adjusted gross income for the prior year was greater than $150,000 (or $75,000 if married filing separately), this second threshold becomes 110% of their previous year’s tax. If a taxpayer reaches either of these thresholds during the year, they are considered to have reached the “safe harbor” and, as long as all payments were made on time, will not be subjected to interest or penalties on any remaining balance due when their return or extension is filed in April.

 Penalties for underpayment or late payment of estimated taxes are 5% of the balance due per month up to a maximum of 25%. These underpaid amounts also incur interest at the federal short-term rate plus three percentage points. As of the first quarter of 2023, the underpayment interest rate is 7% per year, compounded daily.

 Taxpayers needing to make quarterly estimated payments to reach the safe harbor will usually make those payments in four equal installments throughout the year, although be warned that the due dates for those payments do not perfectly correspond to their respective calendar quarters. 2023 quarterly estimate payments are due as follows:

                 First Quarter                     April 18, 2023

                Second Quarter                June 15, 2023

                Third Quarter                   September 15, 2023

                Fourth Quarter                January 16, 2024

 While the window for making quarterly estimate payments towards the 2022 tax year has closed, taxpayers needing to pay estimates for the 2023 tax year should already be looking ahead to the April 18 deadline for first quarter payments. Consulting your tax advisor and ensuring that they have all of the necessary information is highly recommended in order to minimize your exposure to penalties for potentially missing or underpaying your estimated taxes for the coming year.