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Outline of the Estimated Tax Penalty for Individual Taxpayers

Individual Income Tax (per DC Code 47-4214 “Underpayment of Estimated Tax by Individuals”)

The following requirements apply to taxpayers whose withholding does not fully cover their annual tax liability:

1.    A taxpayer shall pay four installments of estimated tax each year:

  • April 15; and
  • June 15; and
  • September 15; and
  • January 15; or equivalent fiscal periods.

2.    Quarterly estimated tax payments, plus withholding, shall normally (see # 3 below) total 25 percent of the lesser of: 90 percent of the tax due for the taxable year; or 110 percent of last year’s tax obligation (if the taxpayer was a 12-month DC resident during last year).

3.    Taxpayers whose income tends to arrive late in the tax year may select the “annualized income method” and pay (cumulatively): first quarter - 22.5 percent of tax due for the taxable year, based upon the annualized income for the first three months; second quarter - 45 percent of tax due for the taxable year, based upon the annualized income for the first five months; third quarter - 67.5 percent of tax due for the taxable year, based upon the annualized income for the first eight months; and fourth quarter - 90 percent of the tax for the taxable year.

4.    Underpayments. The period for underpayment penalty assessment begins on the date when the quarterly installment payment is due (June 15, for example) and ends on the earlier of: the date that the payment is actually made, or the due date of the annual tax return (normally April 15). After the return is filed, the accrued underpayment interest for the year is added to the total tax due for that year.

5.    The underpayment penalty will not be imposed if tax due (Line 41 of Form D-40) is less than $100, providing all required quarterly payments have been timely; or the taxpayer had no tax liability for the preceding 12-month year and was a DC resident during that preceding 12-month period.

6.    The underpayment penalty will not be imposed if, upon appeal to OTR by the taxpayer, the Mayor determines that:

(a)   The taxpayer retired after having attained the age of 62, or became disabled in the taxable year in which the estimated payments were required to be made, or the underpayment was due to reasonable cause and not to willful neglect; OR

(b)   By reason of casualty, disaster, or other unusual circumstance, the imposition of the penalty would be against equity and good conscience; OR

(c)   The taxpayer dies during the taxable year.