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I am a bit confused over the rules and requirements for individuals (and not businesses) making income tax-prepayments to the US Treasury. For instance, I've read that you can make quarterly payments, but that if you choose this route, you must make four payments each year (one for each quarter).

This doesn't make much sense to me as someone can sell stock late in Q4, which is not subject to income tax withholding, and then be subject to a potential penalty come April of next year.

Is there a proper procedure that allows one to send the treasury an income tax prepayment at any time? Which forms allow for such a payment?

I realize that one can submit a new W4 form for additional paycheck withholding, but this might not be sufficient as it is limited to the amount of money available on the check, and time left in Q4.

  • IF this is a one-time 'windfall' and your tax situation is otherwise stable and AGI under $150k you don't actually need to prepay. You can pay up to the (unextended) filing deadline and there's a safe harbor from any penalty if your withholding for this year (2015) was at least the amount of your tax for the previous year (2014); this way is simpler than the per-'quarter' computations needed for schedule AI. See form 2210 and its instructions for lines 6,8,9, or pub 505, all at www.irs.gov under Publications. Of course if you want to prepay that's fine too. – dave_thompson_085 Dec 19 '15 at 2:49
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You can make estimated tax payments on Form 1040-ES. Most people who make such payments need to do it quarterly because the typical reasons for making estimated payments is something like self-employment income that a person will get throughout the year. If you have a one-time event like a single, large sale of stock, however, there's nothing wrong with doing it just one quarter out of the year.

When it comes time to file your taxes, part of the calculate is whether you were timely quarter-by-quarter not just for the entire year, so if you do have a big "one-time" event mid-year, don't wait until the end of the year to file an estimated payment. Of course, if the event is at the end of the year, then you can make it a 4th quarter estimated payment.

  • Yup, I've been in almost exactly this situation. (The trigger was converting an IRA to Roth.) The IRS didn't put up any fuss about getting only one payment. – Loren Pechtel Dec 18 '15 at 21:19
  • If I were any collection agency (IRS or otherwise) I'd never complain about people following through on their commitment to pay! – corsiKa Dec 19 '15 at 0:15
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    Form 2210, Underpayment of Estimated Tax, is the one that takes you through the computation. It annualizes your income and deductions for the period from Jan 1 through the applicable end date of each quarterly payment, then computes the tax on that basis. As long as you have sent in enough that if you kept on going, you are fine. It is a pain, because you are supposed to know when each deductible expense happened. Once you have the big event, you can spread the estimate evenly over the quarterly payments that are left. – Ross Millikan Dec 19 '15 at 0:57

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