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.
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.