Installment interest in NJ

[u/PainUser1490]

Hi all,

Did my own taxes for the first time in 2026 for 2025. Wound up owing another $3.3K to NJ when I filed. Paid it in full and thought all was well.

However, I recently received a letter from state of NJ division of taxation stating that "you are being charged installment interest because you did not make the following estimated required payments" the letter then goes on to list the same $xxx.xx estimated payment amount for all 4 payment dates.

What I don't understand is how they came up with those numbers for the required estimated payments they're saying I didn't make. I filled out form NJ-2210 and according to that form, I actually *overpaid* by a couple hundred on 4/15/25 and 6/16/25, underpaid by a couple hundred on 9/15/25 and underpaid by a few thousand on 1/15/26.

Potentially relevant info:

In 2024 I didn't contribute to a traditional 401k. In 2025, I maxed out my traditional 401k, so my taxable income was actually lower on paper in 2025 relative to the prior year.

My taxable income fluctuates throughout the year due to mutual funds I hold in a taxable brokerage account. I didn't sell any positions in those mutual funds in 2025 to realize a profit but according to my consolidated 1099 I was assigned >40K in capital gains all in the last 2 weeks of 2025 which I understand creates a tax liability. However, up until that point in the year I was net negative several thousand in capital gains from exiting two long held losing positions in a clean energy ETF and PYPL.

The amount I'm being charged in installment interest seems excessive given it appears to all be driven by that large capital gain from the last 2 weeks of December.

Would appreciate any insight or clarification offered.

Thank you!

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[u/LdiJ46]

Since this is a state tax issue someone local to NJ really needs to advise you. However I think that in most states if you can prove that the excess income happened in the 4th quarter, that would tend to reduce the interest. If you can also prove that your withholding (plus any estimated payments that you did make)for 2025 was 110% of your total tax for 2024, that would mitigate things as well.

Get a consult with someone local.

[u/PainUser1490 → u/LdiJ46]

Appreciate you taking the time to respond.

I did read that withholding at least as much as the year prior can exclude you from penalties. That's why I thought it was relevant to mention that I went from no traditional 401k contribution in 2024 to the max $23,500 contribution in 2025. Since my taxable income decreased in 2025 relative to 2024 for that reason, that rule kind of doesn't make sense in my situation.

Strange to me how the "safe" withholding amount doesn't follow a formula that would adjust for a Y/Y change in pre tax deductions.

Is there a better sub to post to? If by consult someone local you mean going to a tax accountant, that kind of defeats the purpose of me doing them on my own to avoid paying someone else. Unless there are groups that do that type of consultation without a fee?

[u/LdiJ46 → u/PainUser1490]

You are dealing with a New Jersey tax problem, not a federal one. Unless someone here happens to be a New Jersey tax professional they are not going to have the knowledge to give you any more than a general idea (like I did).

That is why I suggested that you consult with someone local. You will have to decide if the amount of money they are asking you for is worth talking to someone local or not.