Generally, if individuals are self-employed or have flowthrough income, they may be required to make estimated tax payments. Since your income may fluctuate throughout the year, the IRS offers a safe harbor rule to avoid penalties for underpayment. For taxpayers with prior year adjusted gross income (AGI) of $150,000 or less, the taxpayers may pay either 100% of the prior year’s tax liability or 90% of the current year tax liability. For taxpayers with prior year’s AGI of over $150,000, the taxpayers must pay 110% of the prior year’s tax liability or 90% of the current year tax liability. If you miss a deadline, try to make a catch-up payment as soon as possible. The IRS will assess a penalty equal to 0.5% of the entire amount owed until the payment is made with a maximum penalty of 25%.
