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My unique situation is as follows:

  • My 2020 AGI was around $20k. My 2020 total tax (Form 1040 line 24) was only $700.
  • My 2021 income will be much higher. I had a W-2 job from January through April of 2021. As of this date (early April), my paystub indicates total federal taxes withheld year-to-date are in excess of $4,000.
  • For the rest of 2021, I will have significant self-employment income.
  • Quick math suggests my total AGI for 2021 will be on the order of $100k, +/-$20k.

In summary, my taxes withheld to date are far in excess of my 2020 tax liability, but will likely be much lower than my 2021 tax liability.

I understand that I need to think about estimated tax payments due to significant self-employment income, to avoid an underpayment penalty. I understand these two statements to mean that I do not need to make estimated tax payments for 2021:

Form 1040-ES page 3:

Payment Due Dates

You can pay all of your estimated tax by April 15, 2021, or in four equal amounts by the dates shown below.

And https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes:

Penalty for Underpayment of Estimated Tax

If you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

It is true that I have paid, through withholding, at least 100% of my 2020 tax liability before April 15, 2021. This is fairly clear in my head, but I want to ask if anyone knows of a reason this statement is not true:

Since I have had more than enough tax withheld before April 15, 2021, to cover my 2020 tax liability, I do not need to explicitly file or pay estimated income tax on my self-employment income for the rest of 2021 - even though it means I will owe significant tax on tax day next year.

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    Be careful about the "most taxpayers" part. The requirement could be 110% depending on your income, or there could be other rules applicable to your particular situation.
    – Ben Voigt
    Apr 4, 2021 at 0:39
  • @BenVoigt I noticed the 110% over $150k requirement - my taxable income will certainly not be above 150k. I'm more curious about the 'other rules' part - do you have any thoughts on what those other rules might be that I should be watching out for?
    – form2210
    Apr 4, 2021 at 0:54
  • @BenVoigt 2020 would be the relevant AGI here, and it was only $20k.
    – Craig W
    Apr 4, 2021 at 0:59
  • If you have paid (by withholding) at least 100% of last year's tax (yes), last year's AGI was under $150k (yes) and last year's return was for a full 12 months (probably yes but you didn't say) then yes you are in the safe harbor, and you don't have to pay the remainder of your tax until next April 15. See pub 505 although it isn't updated for 2021 yet, this part won't change. Remember you will owe (and need to pay) SE tax of 15.3% (Soc Sec + Medicare) on your self-employment net income in addition to income tax.
    – dave_thompson_085
    Apr 4, 2021 at 1:06
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    Note that this is all for federal taxes. The rules for underpayment penalty for state taxes may be different.
    – user102008
    Apr 4, 2021 at 7:21

1 Answer 1

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Yes, absolutely you can skip estimated tax payments for 2021. Of course, you could end up owing a lot when you file in early 2022, especially if you're earning self-employment income, so make sure you save plenty to be able to pay what you owe then.

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    Interestingly, if form2210 changes plans and receives W-2 income during the rest of the year, they aren't required to have any tax withheld from the W-2 either. They can give their employer a W-4 with a large deduction, which is essentially an interest-free loan for the rest of their tax balance from the IRS until April 2022 (and in Jan 2022 give their employer a new W-4 without that large deduction to start withholding back up again). I don't know that I would recommend doing this, though.
    – user106227
    Apr 6, 2021 at 17:43

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