• Many clergy have asked whether they are subject to a “penalty” if they make only one “estimated tax payment” at the end of a year in lieu of four quarterly payments over the course of the year. A federal court in Montana addressed this issue recently, and agreed with the IRS that taxpayers who are required to use the estimated quarterly tax procedure must pay their estimated taxes (income tax and social security tax) in four equal quarterly installments on April 15, June 15, September 15, and the following January 15. Waiting until the end of the year to pay the full amount of estimated taxes will result in an underpayment penalty for the three preceding quarters, concluded the court. Generally, any taxpayer who is not subject to income tax withholding is required to estimate and prepay both federal income taxes and social security taxes by using the estimated tax procedure. Clergy are required to utilize the estimated tax procedure since they are always exempt from the tax withholding obligations (unless they are employees who have entered into a voluntary withholding arrangement with their employing church). Accordingly, clergy should be careful to properly estimate and prepay their income tax and social security tax obligations in four equal installments on April 15, June 15, September 15, and the following January 15, in order to avoid any underpayment penalty. Clergy not familiar with this procedure should obtain a copy of IRS Form 1040-ES. Note that your first quarterly estimated tax installment must be mailed no later than April 17, 1989 (April 15th falls on a Saturday). Veis v. United States, 88-2 USTC para. 9616 (D. Mont. 1988).

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