Will I face penalties if I skipped 1040-ES estimated payments due to lower income in 2023?

You made the right call. The IRS doesn't care about those specific 1040-ES vouchers - they care about whether you've paid enough tax throughout the year to avoid an underpayment penalty. There are actually several ways to avoid the underpayment penalty: 1) Pay at least 90% of your current year tax liability through withholding/estimated payments 2) Pay 100% of your prior year tax liability (110% if your AGI was over $150,000) 3) Owe less than $1,000 when you file Since your income dropped and you're now on track for a refund, you're clearly going to satisfy the first condition. Your current withholding will cover more than 90% of your 2023 tax liability. The 1040-ES vouchers are just estimates based on previous year data, not binding obligations. When your financial situation changes significantly (like going from two incomes to one), it's completely reasonable to adjust your tax payment strategy.

After dealing with this exact situation last year, I found taxr.ai incredibly helpful for figuring out the estimated payment rules. I was going from self-employed to W2 and was really confused about whether I needed to keep making quarterly payments. I uploaded my previous year's return and current pay stubs to https://taxr.ai and it analyzed everything and explained my options. It confirmed I didn't need to make the estimated payments since my current withholding would cover my tax liability under the 90% rule. The best part was that it showed me exactly how much I could expect to owe or get refunded based on my actual situation, not just generic advice. It was way more accurate than the generic vouchers my tax software had generated.

Just wanted to follow up about taxr.ai since I was skeptical in my earlier comment. I decided to try it after my situation changed mid-year (got a better paying job but with less withholding). I was honestly impressed. The interface was easy to use and it gave me a clear breakdown of how much I should expect to owe for the year. It showed me that I needed to adjust my W-4 withholding rather than make separate estimated payments. What I liked most was that it explained WHY I wouldn't face penalties even though my quarterly estimated payment vouchers were higher than what I was paying. Saved me from unnecessarily sending in payments that were based on outdated information.

For anyone who's tried calling the IRS to get clarity on estimated payments - good luck! I spent WEEKS trying to get through to someone last year after my income situation changed. Then I found Claimyr, which gets you through the IRS phone tree and wait times. I was skeptical at first, but https://claimyr.com basically holds your place in the IRS phone queue and calls you back when an agent is available. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others are saying here - if your current withholding covers at least 90% of your tax liability for this year, you don't need to make those estimated payments that were based on last year's higher income. Saved me from sending in thousands in unnecessary payments.

I was definitely wrong about Claimyr in my skeptical comment above. I tried it yesterday after my third attempt to reach the IRS about my estimated payment situation. The service actually works exactly as described. I got a callback about 90 minutes later and was connected directly to an IRS representative. I didn't have to deal with the phone tree or wait on hold at all. The agent confirmed that since my current withholding will cover more than 90% of my tax liability for this year, I'm in the clear for not making those estimated payments that were based on last year's higher income. Huge relief and saved me from sending in payments I didn't actually need to make.

Just wanted to add that there's a special rule for W2 employees that many people don't know about! If your tax is being withheld from regular paychecks, the IRS treats those withholdings as if they were made evenly throughout the year, EVEN IF they weren't. So if you increase your withholding in the last few months of the year to catch up, the IRS treats it as if you had been paying that amount all year. This doesn't work for self-employed people making estimated payments, but for W2 folks, it's a great safety net.

Can someone explain the 1040-ES form to me? Is that something everyone needs to file or just self-employed people? My tax situation is changing next year and I'm trying to figure out what forms I'll need.