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.
