My income dropped this year. How much do I pay in quarterly taxes?
Short answer
If your income dropped, you can generally base your quarterly payments on 90% of this year's expected tax instead of last year's tax, so you don't overpay into a down year.
Otavio Mayole, Co-founder, DeCypher FinancialsUpdated
The two common safe harbors:
- Last year's tax: pay 100% of last year's total tax, or 110% if your income last year was high.
- This year's tax: pay 90% of what you'll owe this year.
When income drops, the second one is usually lower. The catch: it depends on a good estimate, so your books need to be current.
Other tools we use:
- Uneven income. If most of your money comes late in the year, a method that matches payments to when you earned the income can reduce penalties.
- A spouse's W-2 withholding on a joint return can cover part of what you'd otherwise pay quarterly.
- Last year's refund can be applied to this year's estimates instead of paid out.
If your income bounces back later in the year, update your payments. We check this on your finance calls.