J. William Seabrooke CPA P.C.

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

The Federal and state income tax systems are structured on a “pay-as-you-go” basis.  This means that everyone is expected to have deposited one-fourth of their ESTIMATED annual tax liability each and every quarter.  This can be accomplished by at least two different methods 1) payroll deductions on your behalf by an employer, or 2) making quarterly “Estimated Tax Deposits”.  You can also use any combination of these two methods as long as the end result is achieved.  You can also use the “Electronic Federal Tax Payment System”, which is both free and accurate – Welcome to EFTPS online 

To permit you to continuously calculate and update your annual projected tax liability for the year, throughout the year, you can use the soft copy of your last filed-and-accepted tax returns to perform the calculations for you – 1) open the filed-and-accepted tax return file, 2) save it as a new and different file name, 3) enter the financial data for the current tax year, 4) divide the annual “tax liability” by four, 5) save the file for future reference.

If you do not meet the Federal guidelines, there could be interest and penalties.  However, you will need to complete Federal tax form 2210 to make this determination ( 2020 Form 2210 (irs.gov) )  IF your monthly and quarterly income was not relatively even throughout the year (i.e. you received a large salary bonus, you were promoted and also received a salary increase, you sold investments, or you received your “Required Minimum Distribution” (RMD), etc) you can use the same form to “annualize” your estimated income for the current tax year.

The IRS does have “Safe Harbor Rules” –

” The estimated safe harbor rule has three parts:

• If you expect to owe less than $1,000 after subtracting your withholding, you’re safe.
• If you pay 100% of your tax liability for the previous year via estimated quarterly tax payments, you’re safe. …
• If you pay within 90% of your actual liability for the current year, you’re safe.”

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