For the first time ever, I will be making quarterly tax payment throughout 2023. I have no problem predicting pretty closely what my 2023 tax will be and hence the amount required each quarter. I have finished but not yet submitted my 2022 taxes and I have a refund due that exceeds the quarterly amount due in 2023.
The question is, “If I don’t take the 2022 refund and roll the credit to 2023, will that satisfy the requirement for the first quarter 2023 payment of estimated taxes?”
If so, does timing make a difference? If the IRS hasn’t processed my 2022 return by the April 18, 2023 quarterly payment deadline, will I be in a penalty situation for under payment?
I presume this means the first estimated payment amount, not the total of the estimated payments for 2023?
Yes, the refund will be applied to your estimated payments until it runs out.
As long as you have proof that your return was submitted to the IRS in a timely manner, you should be fine. If you are mailing in your return, be sure to get proof of mailing and proof of receipt. If you are filing electronically, you should keep proof that your return was accepted.
Additionally, I would point out that you won’t be subject to an underpayment penalty as long as your total estimated payments meet a safe harbor amount.
Thanks AJ. Your answer raises another possible and better alternative. Could I just make just one giant payment near the end of 2023 that, along with the rolled over 2022 refund, would exceed the safe-harbor threshhold?
Could I just make just one giant payment near the end of 2023 that, along with the rolled over 2022 refund, would exceed the safe-harbor threshhold?
Or even better, take my 2022 refund due. Then late in 2023 make just one even bigger estimated tax payment that alone satisfies the safe harbor threshhold?
I would suggest running your scenario through IRS Form 2210 2022 Form 2210 (irs.gov) Here are the instructions 2022 Instructions for Form 2210 (irs.gov) There are some scenarios where your suggestion would work, but you would need to figure out if what you’re planning is one of them.
I would also note that if you happen to be withdrawing money from Traditional accounts, making one large payment to the IRS from the Traditional account is considered to be withholding and will be considered to have been made throughout the year.
Not necessarily. If your estimated payments, timely or not, came within $1000 of what you owed, or were at least 100% (110% if your income was more than $150k) of your prior year’s tax owed and your filing status was the same for both years, Form 2210 instructs you not to file it.