Estimated tax payments, what are they?

If you are self employed, then you most likely are aware of what estimated tax payments are and your requirement to pay them, but if you are just starting down the road of entrepreneurial life, then this may be something that you are not at all familiar with. Estimated tax payments are referred to as quarterly payments by many due to the fact that they are due to be paid on a quarterly basis. The Internal Revenue Service and State taxing agencies require you to make quarterly estimated tax payments during the calendar year if you expect to owe more than $1,000 in federal tax. State agencies vary with their requirements on when you are required to make estimated tax payments.

This is the method used to pay tax on income that is not subject to withholding by an employer or other sources. This can include income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough and you do not wish to adjust your withholding. If your withholding is not sufficient, and you do not pay enough estimated tax payments by the due dates, you may be charged a penalty.

IRS Form 1040-ES, Estimated Tax for Individuals, can be used in order to calculate the amount you are required to pay per quarter based on your anticipated tax bill. These payments are able to be paid in several ways. You can mail a check, however, the IRS prefers you to use one of the more automated methods like their Direct Pay option or using their Electronic Federal Tax Payment System (EFTPS) website. Either of those methods allow you to schedule payments to be deducted directly from your bank account and posted to your account with the IRS.

These payments are due as follows. Please take note, these are not calendar quarters, and therefore, knowing these dates or working with a tax professional who is diligent in keeping these dates in front of you is very important.

For the period:Due date:
Jan. 1 – March 31April 15
April 1 – May 31June 15
June 1 – Aug. 31Sept. 15
Sept. 1 – Dec. 31Jan. 15, next year

If you file your tax return by February 1st, and pay any tax owed in full at that time, then you are not required to make the payment on January 15th.

The rules for paying Estimated Tax payments do vary for farmers and fisherman, and we would be more than happy to assist, if you fall into this category, to help you determine what the requirements for you are.

If you pay these quarterly payments on time, and in the proper amounts, then you will save yourself not only money in penalties, but also the stress of having to deal with the IRS once you have an outstanding balance due.