Avoid 2025 Tax Penalties: A Simple Fix You Can Use Today

If you’ve fallen behind on estimated tax payments this year, you’re not alone. Many business owners and self-employed professionals realize late in the year that they’ve missed one or more quarterly deadlines, and that can mean facing a 7% penalty on underpaid taxes that keeps compounding until you take action.

The good news? There’s a smart, legal way to stop those penalties immediately and even eliminate them completely.

Why Paying Late Doesn’t Fix It

Once you’ve missed a quarterly estimated payment, writing a big check today doesn’t erase the penalties that have already built up. It simply stops them from growing any further.

That means if you’ve skipped your April, June, and September payments, sending everything in at once won’t make the slate clean. But there is one exception, and it’s surprisingly simple.

The 60-Day Retirement Plan Fix

If you have a retirement account such as an IRA, 401(k), or SEP IRA, there’s a special IRS rule that lets you use the account’s withholding feature to eliminate estimated tax penalties.

Here’s how it works:

  1. Withdraw enough from your retirement account to cover your full year of estimated taxes.

  2. When withdrawing, ask your plan custodian to withhold federal income tax and send it directly to the IRS.

  3. Within 60 days, repay the same amount back into your retirement account from another source (such as savings or an investment account).

Because the IRS treats tax withholdings as if they were paid evenly throughout the year, this effectively wipes out your penalty exposure. And since you rolled the funds back within 60 days, you won’t owe tax or face early withdrawal penalties.

Who Can Use This Strategy

This rule works for most retirement plans, including:

  • Traditional IRAs

  • Roth IRAs

  • SEP or SIMPLE IRAs

  • 401(k), 403(b), and 457(b) plans

For IRA rollovers, note that you can only use this strategy once per 12-month period across all your IRAs. (That restriction doesn’t apply to employer-sponsored plans like 401(k)s.)

For Retirees: The RMD Shortcut

If you’re 73 or older and required to take an annual Required Minimum Distribution (RMD), you can use your RMD to the same effect. Simply elect to have federal taxes withheld from your distribution. The IRS will treat those withholdings as if they were made evenly across the year, satisfying both your RMD and your estimated tax obligations.

What Not to Do: The “Bonus” Mistake

Some S-Corporation owners try to fix underpayments by giving themselves a late-year bonus and withholding the taxes from that paycheck.
That’s a bad idea for two reasons:

  1. Payroll taxes on that bonus (Social Security + Medicare) can exceed the penalty you were trying to avoid.

  2. The additional wages can reduce your 20% Qualified Business Income (QBI) deduction, costing you even more in lost tax savings.

The Takeaway

✅ Missing estimated payments doesn’t have to mean automatic penalties.
✅ With the 60-day retirement rollover, you can fix the issue instantly and stay compliant.
✅ Retirees can use RMD withholdings to achieve the same effect.
✅ Avoid last-minute payroll “bonus” fixes that trigger unnecessary taxes.

At Brothers Tax, we help you stay proactive and penalty-free with real-world tax strategies that work.

Have questions about estimated payments or penalty relief?
Contact our team at BrothersTax for personalized guidance.

Filed under Tax Planning. Tagged with 2025 tax updates, IRS penalty relief, and Brothers Tax insights.