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Estimated Tax Payments Explained
Estimated tax payments ensure you stay compliant with federal tax obligations if your income isn’t subject to withholdings. Whether you’re an independent contractor, freelancer, or small business owner, understanding these payments is crucial to avoid penalties. Let’s explore what triggers estimated tax payments, who must pay them, and how to meet these obligations effectively.
What Triggers Estimated Tax Payments?
You may owe estimated taxes if the following apply:
- You owed taxes last year and owe at least $1,000 this year after subtracting withholdings and credits.
- Your withholdings and credits are less than:
- 90% of the current year’s tax liability, or
- 100% of last year’s tax liability (110% if your adjusted gross income exceeds $150,000).
For corporations, estimated taxes are required if their liability is $500 or more. Therefore, always evaluate your prior year’s taxes and current withholdings carefully to determine your obligations.
Who Pays Estimated Payments?
Typically, taxpayers who earn non-wage income need to make estimated tax payments. This group includes:
- Independent contractors and freelancers
- Small business owners
- Individuals with income from dividends, capital gains, or interest
Even W-2 employees may need to make estimated tax payments if their withholdings are insufficient. To avoid these payments, you can file a new Form W-4 to increase your federal withholdings. The IRS also offers a tax withholding estimator to help you calculate the correct amount.
When Are Estimated Tax Payments Due?
Generally, the IRS sets quarterly deadlines for estimated tax payments, ensuring taxes are paid periodically throughout the year. Here are the due dates:
For income earned between: Due Dates
- January 1 and March 31: April 15
- April 1 and May 31: June 15
- June 1 and August 31: September 15
- September 1 and December 31: January 15 of the following year*
*If you file your tax return by January 31 and pay any remaining balance, you can skip the January 15 payment.
You can also choose to pay estimated taxes weekly, bi-weekly, or monthly, as long as the full amount is paid by the quarter’s end. Late payments may result in IRS penalties.
How Do I Pay My Estimated Taxes?
The IRS offers several convenient ways to pay your estimated taxes:
- IRS2Go App: Use your mobile device to pay taxes securely.
- Electronic Federal Tax Payment System (EFTPS): This is the IRS-recommended method for ease and reliability.
- IRS Direct Pay: Make payments directly from your bank account.
- IRS Online Account: Pay and track your taxes online.
- Debit/Credit Card or Digital Wallet: Options include PayPal and other platforms (fees may apply).
- 1040-ES by Mail: Mail a check or money order with Form 1040-ES.
Note that corporations must use the EFTPS method to submit their estimated payments.
Stay Compliant with Expert Tax Guidance
Estimated tax payments are essential for managing non-wage income and avoiding IRS penalties and interest. With multiple payment options and clear deadlines, staying compliant has never been easier. If you need help calculating or paying your estimated taxes, DuPage Tax Solutions is here to assist.
References
Estimated Taxes | Internal Revenue Service. https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes
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