2

I currently reside and work outside of the US. In 2023, I filed and paid taxes on time but was assessed a penalty because I didn't pay taxes quarterly when my only US income was interest income for some cash I invested in a Schwab SWVXX. In June of 2024, I moved the funds to a tax-free muni. But i may still owe some tax up until June or so. Assuming I should have filed quarterly last year, how do I figure out my tax liability for paying estimated taxes now? Is there a minimum quarterly or annual threshold? What else should I know about this that I probably don't know based on the yawning gaps in my knowledge that I reveal by asking this question?

1 Answer 1

4

There's not an income threshold - underpayment penalties are based on the total net tax that you owe (total tax minus what was prepaid or withheld from paychecks).

If you do not have any withholdings from a job, then yes you should make estimated tax payments:

From the IRS (emphasis added):

Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments.

One rough estimate would be to estimate your total taxable income for the year, subtract off any deductions (standard or itemized), and calculate your tax due based on your tax bracket. Then pay however much the income for that quarter contributed to that total (e.g. 25% if it's the same each quarter).

If you don't want to go through that, then pay 25% of your interest income each quarter and hope it's enough - at worst you'll get it back as a refund. (This is not professional tax advice - if you want professional advice see a tax professional that can look at your specific situation)

2
  • 4
    While this is good advice to try and avoid needing extra payment due in April, paying 110% of prior year's tax owed is a good rule to understand, for avoidance of actual penalties if you end up under-withholding for the current year. hrblock.com/tax-center/irs/tax-responsibilities/… Commented Jul 2 at 15:15
  • "underpayment penalties are based on the total net tax that you owe (total tax minus what was prepaid or withheld from paychecks)" No. Underpayment penalties are based on the safe harbor level minus what was paid. The safe harbor level is generally 90% of current year's tax or 100% (110% for high earners) of previous year's tax.
    – user102008
    Commented Jul 4 at 1:27

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .