What are quarterly estimated tax payments?
Quarterly estimated tax payments ensure that your taxes owed are covered at the end of the year, even if you don't have an employer withholding taxes from paychecks.
Taxpayers who pay estimated taxes usually have income from side jobs, small businesses, and more.
Why pay estimated taxes?
When you have an employer, they withhold and send your federal taxes to the IRS paycheck-by-paycheck.
But, when you're self-employed or get a paycheck that doesn't have taxes withheld, you still have to pay taxes on that income throughout the year. Otherwise, you would end up paying the entire year's taxes owed at once, which is no fun (and usually not allowed, anyway).
That’s where estimated tax payments come in. Instead of an employer withholding taxes and sending them in on your behalf, you're doing it for yourself every three months.
How do I know if I need to make estimated tax payments?
You'll need to make estimated payments if:
- Your total taxes owed (including your self-employment tax) will be $1,000 or more, and
- Any withholding you have from another source (like a day job) covers less than 90% of the total taxes owed from all your income streams during the year.
Sound complicated? Try this. The IRS has a handy withholding calculator that will let you know if you need to make estimated tax payments.
What happens if I pay too much in quarterly taxes?
Just like other withholdings, estimated payments that overshoot your actual taxes owed will be given back to you as a refund when you file your tax return—pretty nice, right?
If you know you'd like to boost your refund, adding some extra padding to your estimated tax payments will increase your chances of getting a refund. Remember that you won't get that money back until your tax return is filed and accepted, though.
What happens if I don't pay estimated taxes?
The IRS applies an underpayment penalty if you don't set aside enough throughout the year to satisfy your federal tax bill.
The penalty is calculated based on:
- The amount of the underpayment
- The period when the underpayment was due and underpaid
- The interest rate for underpayments
If you owe a penalty, the IRS will send you a notice by mail. Interest starts accruing the day the IRS sends the notice or assesses the penalty, and it increases the amount you owe until you pay your balance in full.
Worried about getting an underpayment penalty? Try this. If you pay at least 100% of the taxes due on your previous tax return throughout the year, you're good to go (so long as last year's return covers all 12 months). Even if it's less than your taxes owed, you won't be penalized for underpaying.
When do I make these tax payments, and how?
Estimated tax payments are due April 15, June 15, September 15, and January 15 (unless those dates fall on a weekend or holiday—here are the dates for this year).
IRS Form 1040-ES has all the details, including calculation instructions and payment vouchers. Simply print and mail your payments with the vouchers provided, or pay online through the IRS payment portal.
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