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I am a Spaniard and immigrated to the US on January of this year. I worked in the US in 2015 & 2016 and filed taxes for those years, but I was not in the US during 2018 so I had no tax liability for that year.

I worked this year and made a bit of income (>70K). About 80% of that income is from self-employment (1099-MISC) but I didn't make estimated tax payments during the year. Since I had no tax liability for 2018, do I have to make estimated tax payments? Will I have to pay a penalty for underpayment at this point? Or can I wait for the filling date in 2020?

Something to note is that I got married this year and we will be filling married jointly. I didn't have a tax liability last year but my wife did (meaning that she filed a return for 2018). I'm not sure if that changes anything.

I also live in the state of California. Not sure if there's a difference between federal and state taxes when it comes to this particular topic.

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  • Not sure on the answer but I sure hope you have enough in savings to cover the tax hit in april..... The smart move would be to make the payments anyway so that you can be sure that the money is there....
    – xyious
    Nov 7, 2019 at 21:55
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    @RonJohn please read "Who Does Not Have to Pay Estimated Tax" here: irs.gov/businesses/small-businesses-self-employed/…
    – jgozal
    Nov 8, 2019 at 2:19
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    If you are (both) eligible for trad-IRA deduction (needs info you haven't told us) yes it reduces income tax at your marginal rate (probably 22%, depends on more info) but does not affect SE tax. You can make the IRA contribution(s) as late as next April 15. For yourself you could instead do a 'Solo' (one-person) 401k (trad), which allows contribution up to $19k 'employee-side' plus a variable amount 'employer-side'; 401k must be established by Dec. 31. Either trad IRA or 401k can be withdrawn without penalty only after age 59.5 or certain specified hardship cases. ....
    – dave_thompson_085
    Nov 18, 2019 at 22:23
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    ... Even without/aside from any tax benefits, this Stack generally considers saving for retirement a good idea at least in US (which does not have stellar government benefits for elderly) and you can find lots of existing Qs (and As) about the topic, but if you want to ask about specifics that should probably be a new Q.
    – dave_thompson_085
    Nov 18, 2019 at 22:25
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    To be certain you know: if you participate in a workplace plan (such as the 401k), and your MAGI is over a limit ($103k-123k for MFJ in 2019), you lose the deduction for trad IRA. (You can still contribute and get the long-term tax deferral on earnings and compounding, and a future deduction on the portion of distributions that return your 'basis', but you don't get the current-year deduction.) Happy holiday(s).
    – dave_thompson_085
    Dec 29, 2019 at 9:19

2 Answers 2

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My reading of the rules is that you will owe an underpayment penalty (unless you can adjust your withholding in your W-2 job so that withholding reaches 90% of this year's tax liability by the end of the year).

Here are the 2019 draft form and instructions for Form 2210, the form for underpayment penalty. How it works is that you calculate 90% of your 2019 tax on line 5, and then you put 100% or 110% of your 2018 tax on line 8. Whichever is smaller of those goes on line 9, and if that is less than line 6 (your 2019 tax withholding from your W-2 job), you don't need to make estimated tax payments. However, if you look at the instructions for line 8, it says if you didn't file a return for 2018 (and I am assuming you didn't), you don't complete line 8, and enter the amount from line 5 (90% of 2019 tax) on line 9.

There is an exception to the penalty for people who didn't have tax the previous year,

You had no tax liability for 2018, you were a U.S. citizen or resident alien for the entire year (or an estate of a domestic decedent or a domestic trust), and your 2018 tax return was (or would have been had you been required to file) for a full 12 months.

Both the relevant section of the form instructions above, and the relevant section of Publication 505, say that you have to be a resident for the whole year, but do not clarify which year that is (the tax year you are filing for, 2019, or the previous year, 2018). However, the corresponding section of law, 26 USC 6654(e)(2), clearly specifies that you have to be a resident throughout the "preceding tax year" (2018), which you are not. So you can't use this exception either.

If you have to make estimated payments, you have to make an adequate amount in each quarter. Payments for each quarter are due April 15, June 15, September 15, and January 15. You cannot just wait until January 15 to pay the estimated taxes for the whole year. If you got income unevenly through the year, it is possible to calculate estimated tax payments for each quarter based on the income up to that quarter, but unless almost all of your income was in the 4th quarter, you would still have already paid too little estimated taxes for the first 3 quarters whose due dates are past, and would still have interest plus a penalty for that.

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  • thank you. Me not being a resident during the preceding tax year is an important detail. I suspect this is most likely the right answer based on your research and also what I have read thus far.
    – jgozal
    Nov 9, 2019 at 12:36
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If you had been a U.S. resident in 2018, then as long as the withholding from your wife's job in 2019 is at least as much as the tax she paid in 2018, you wouldn't need to pay estimated tax this year, and you could pay the balance due in April 2020 without penalty.

However, there are special rules for non-resident aliens that I am not familiar with.

You should see the section Aliens in publication 505 (Tax Withholding and Estimated Tax, https://www.irs.gov/pub/irs-pdf/p505.pdf), which directs you to Form 1040-ES (NR), U.S. Estimated Tax for Nonresident Alien Individuals. The question is complicated by the fact that you are now a resident, but you weren't last year.

You should also see publication 519 (U.S. Tax Guide for Aliens).

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  • Correct. I was not a U.S. resident in 2018 but I am a Resident Alien now. Thanks for the insight.
    – jgozal
    Nov 8, 2019 at 2:18

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