19 Feb Estimated Tax – Safe Harbor Rules
Because clergy are exempt from tax withholding on their paychecks, they will usually need to make Estimated Tax Payments throughout the year to ensure that their taxes are paid. If you don’t do it, it can result in penalties.
If you expect to owe at least $1,000 in tax for 2025 AND all of your 2025 withholding and credits will be less than the smaller of:
- 90% of the 2025 tax OR
- 100% of the tax that was on your 2024 return
Then yes, you need to make estimated tax payments.
In simpler terms, if you will owe tax for 2025 and you don’t have withholding to cover it, you should be making estimated payments.
Estimated Payment Penalty
If you don’t make your estimated tax payments on time, you may face a penalty for underpayment of estimated tax. Here’s a brief overview:
- Calculation of Penalty: The penalty is calculated based on the amount of underpayment, the period during which the underpayment occurred, and the IRS’s published quarterly interest rates.
- Avoiding the Penalty: Generally, you can avoid the penalty if you owe less than $1,000 in tax after subtracting your withholding and refundable credits, or if you paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year.
- Waiver of Penalty: The IRS may waive the penalty if the underpayment was due to a casualty event, disaster, or other unusual circumstance, or if you retired (after reaching age 62) or became disabled during the tax year or the preceding tax yea
Original content by clergyfinancial.com. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.