What You Need to Know About Paying Estimated Taxes
Apr 29, 2024
Federal and state income taxes are collected by the IRS throughout the year when our employers withhold a certain amount from each paycheck. Often, the withheld amount is enough so that you don’t owe money when it comes time to do taxes in April.
If the amount withheld from your salary isn’t enough, or you earn income from other sources, you may be required to pay estimated quarterly taxes.
Who Should Pay Estimated Taxes?
If you expect to owe $1,000 or more on your taxes when your return is filed, you will likely need to pay estimated taxes. Others who may have to pay estimated taxes include:
- Self-employed people
- Businesses and corporations
- Those who aren’t withholding enough in their paychecks
- Landlords
- Investors
If you aren’t sure if you should be paying estimated quarterly taxes, see Form 1040-ES, Estimated Taxes for Individuals. If you want to update the amount that is withheld from each paycheck, work with your employer to file a new Form W-4.
How Do You Calculate Estimated Taxes?
There are multiple ways to determine how much you should be paying in estimated taxes.
One method is to estimate based on taxes from previous years. Take one-fourth of the amount you’ll owe for the year and use that to send to the IRS each quarter. This works better for those who are confident their income will be consistent year after year.
Another option is to annualize, which means to estimate at the end of each quarter based on your income and deductions so far in the year. This is usually the best route for someone whose income fluctuates.
If you need more guidance, refer to Form 1040-ES and use the worksheet to help determine your estimated tax payments.
When Should Estimated Taxes be Paid?
The IRS has a quarterly schedule each year for when estimated taxes must be paid. Those dates are:
- April 15
- June 15
- September 15
- January 15 of the next year
You may be charged a penalty if you don’t pay enough in estimated taxes by each due date.
If you’d like to make more than four payments a year, you can do so as long as you cover the amount due each quarter.
How Do You Pay Estimated Taxes?
There is no shortage of ways to pay estimated taxes.
According to the IRS website, using the Electronic Federal Tax Payment System (EFTPS) is the easiest way. It includes a record of previous payments for easy reference as well as the ability to schedule, track, and edit payments.
Other options include:
- By mail
- By phone
- Online via the IRS website with direct pay from your bank account
- Online via the IRS website by debit card, credit card, or digital wallet
- Online via your IRS account
- Through the IRS2Go mobile app
Whether you're an individual, sole proprietor, partner, or S corporation shareholder, make sure you’re in the know about paying estimated quarterly taxes.
If you need assistance understanding the rules and regulations of estimated taxes, please schedule an appointment with us.
