IRS Tax Payments

Introduction to IRS Estimated Quarterly Tax Payments

If you are self-employed or have income that is not subject to tax withholding, you may need to make estimated quarterly tax payments to the IRS. Estimated tax payments are due four times a year and are used to pay income and self-employment taxes as well as other taxes such as the alternative minimum tax and the net investment income tax. In this article, we will discuss what estimated tax payments are, who needs to make them, and how to calculate and make them.

Who Needs to Make Estimated Quarterly Tax Payments?

If you are self-employed, have income from sources such as rental properties or investments, or receive a significant amount of income from a job where taxes are not withheld, you may need to make estimated quarterly tax payments. Generally, if you expect to owe $1,000 or more in tax for the year after subtracting your withholding and refundable credits, you should make estimated tax payments.

How to Calculate Estimated Quarterly Tax Payments

To calculate your estimated quarterly tax payments, you will need to estimate your income and deductions for the year. You can use the previous year's tax return as a guide or use tax software or a tax professional to help you estimate your tax liability for the current year.

Once you have estimated your total tax liability for the year, you can divide that number by four to determine your estimated quarterly tax payments. However, if your income is not evenly distributed throughout the year, you may need to adjust your estimated payments accordingly. For example, if you earn most of your income in the second half of the year, you may need to make larger estimated payments in the third and fourth quarters.

How to Make Estimated Quarterly Tax Payments

The IRS allows taxpayers to make estimated quarterly tax payments electronically or by mail. To make electronic payments, you can use the IRS's online payment system, which accepts credit or debit card payments or bank transfers. You can also enroll in the Electronic Federal Tax Payment System (EFTPS), which allows you to make payments online or by phone.

To make payments by mail, you will need to use Form 1040-ES, which includes a payment voucher and instructions for making payments. You can also use IRS Direct Pay, which allows you to pay directly from your bank account without a fee.

Consequences of Not Making Estimated Quarterly Tax Payments

If you do not make estimated quarterly tax payments when required, you may be subject to penalties and interest on the underpayment of tax. The penalty for underpayment of estimated tax is calculated based on the amount of the underpayment and the length of time the underpayment remains unpaid.

Conclusion

Making estimated quarterly tax payments can help you avoid penalties and interest on underpayment of tax. If you are not sure whether you need to make estimated tax payments, you can use the IRS's online withholding estimator to help you determine your tax liability for the year. If you do need to make estimated payments, be sure to calculate and make them on time to avoid penalties and interest.