Is the final estimated tax payment required if you will get a refund without it?

Question

We have paid the first three estimated tax payments for 2022, but we are on track to get a refund without the final one. If we are planning to file by mid-February, will the IRS still expect us to make the estimated tax payment by January 17, 2023? We would basically be paying them money just to have them return it back to us in a refund.

Answer 1

No. The amount of (withholding and estimated) tax you need to have paid in the whole year is the safe harbor level, which is 90% of this year's tax liability or 100% (or 110% for high earners) of last year's tax liability. If you have a refund, that means you have paid more than 100% of this year's tax liability, which is more than 90%. So you won't have an underpayment penalty for 4th quarter.

For the first 3 quarters, the amount of tax you need to have paid in the 1st quarter, cumulatively up to the 2nd quarter, and cumulatively up to the 3rd quarter, are 1/4 of safe harbor level, 1/2 of safe harbor level, and 3/4 of safe harbor level, respectively. (In some cases, you might be able to get the level even lower by using the Annualized Income method, but you don't need to here since you have paid more than enough for the default method.) If you have paid 3 equal estimated tax payments for the first 3 quarters, and that's already enough for the whole year, then that means you were well above the level you need to have paid, so you will not have an underpayment penalty for the first 3 quarters either.

Fill out form 2210 and you will see that there is no penalty.

Answer 2

No, if your first three estimate payments cover your full tax liability, you would not have any issues skipping the last one. It is intentionally supposed to be after the end of the year, when you can already know quite accurately what your tax liability should be.