IRS: Taxpayers may avoid a surprise tax bill by making a quarterly payment by Jan. 16

Westend61 | Westend61 | Getty Images

The fourth-quarter estimated tax deadline is Jan. 16, and you could have a surprise bill or owe a penalty if you don’t send a payment, according to the IRS.

While many employers withhold levies from every paycheck, other income — such as freelancing, small business or investment earnings — requires a separate payment to the IRS.

Generally, you must make quarterly estimated payments for this income if you expect 2023 tax liability of $1,000 or more.

In December, the IRS reminded such taxpayers to make a fourth-quarter tax payment on or before Jan. 16 “to avoid a possible penalty or tax bill when filing in 2024.”

“By making those payments, you avoid having to pay the IRS even more on April 15,” said certified public accountant Tom Wheelwright, CEO of WealthAbility.

If you miss the estimated tax payment deadline, you may trigger a late penalty of 0.5% of your unpaid balance per month or partial month, up to 25%, plus interest, which is currently 8%.

What to know about the ‘safe harbor’ rules

Filers can avoid an underpayment penalty by following the “safe harbor” guidelines, according to Mark Steber, chief tax information officer at Jackson Hewitt.

You meet the requirements by paying at least 90% of the current year’s tax liability or 100% of last year’s taxes, whichever is smaller.

But if your 2022 adjusted gross income was $150,000 or more, you need to pay the lesser of 90% of the current year’s tax liability or 110% of last year’s taxes to meet the safe harbor requirement for 2023. You can find adjusted gross income on line 11 of Form 1040 from your 2022 tax return.

“A really good tax projection [for 2023] is something that you need to think about right now,” Steber added.

How to make quarterly estimated tax payments

With limited time until the deadline, “the fastest and easiest” option for remitting funds to the IRS is via electronic payments, according to the agency. Here are your options:

If you pay by sending a check in the mail, Wheelwright recommends sending it via certified mail with a return receipt because you may “have to prove that you made it on time.”