Estimated tax payments. Both individuals and businesses are required to pay taxes as income is earned or received throughout the year. Taxes can be paid either through withholding or by making estimated tax payments.
Generally, for taxpayers that file on a calendar year basis, estimated tax payments are due April 15th, June 15th, September 15th, and January 15th of the following year. Sometimes these dates are pushed back a day or two because they fall on a Saturday, Sunday, or holiday.
Who must pay estimated tax. Individuals, including sole proprietors, partners, and S corporation shareholders, must make estimated tax payments if they expect to owe $1,000 or more in tax when their return is filed.
In addition, individuals who don’t have enough tax withheld from their wages or salaries may need to make estimated tax payments. Individuals who receive a paycheck can check the Tax Withholding Estimator app on the IRS website to determine if the right amount of tax is being withheld from their paycheck.
Corporations generally must make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
How to avoid paying estimated tax. Self-employed individuals (including gig workers) can avoid paying estimated tax by withholding extra tax from other income such as salaries, wages, or retirement income. To start or increase tax withholding, an individual should submit to the payor an IRS Form W-4. Step 4 of Form W-4 allows a taxpayer to enter an additional amount of tax to be withheld.
How to figure estimated tax. To figure estimated tax, individuals must determine their expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. When figuring estimated tax for the current year, taxpayers may find it helpful to use income, deductions, and credits from the prior year as a starting point.
Individuals use IRS Form 1040-ES, to figure their estimated tax.
Corporations use Form 1120-W , to figure their estimated tax.
When and how to pay estimated tax. Taxpayers must make estimated tax payments quarterly—i.e., four times per year.
Using one of the electronic payment options available on the IRS website is the easiest way for individuals, small businesses, self-employed individuals and gig workers to make federal tax payments. In addition:
- Taxpayers can use the Electronic Federal Tax Payment System (EFTPS) for all their federal tax payments, including payments of employment taxes (federal tax deposits), installment agreement payments and estimated tax payments. EFTPS allows taxpayers to access a history of their payments, so they know when and in what amounts the payments were made.
Note. Corporations must make their tax payments using the EFTPS system.
Individuals can use their IRS Online Account to make their estimated tax payments. An IRS Online Account allows taxpayers to see their payment history, any pending payments and other useful tax information.
Note. Both EFTPS and IRS Online Account require prior registration. Taxpayers should be sure to register well before they need to make a tax payment.
- Individuals can also make tax payments using IRS Direct Pay.
Penalties for failure to pay estimated tax. If a taxpayer doesn’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty. Also, taxpayers may be charged a penalty if estimated tax payments are late, even if the taxpayer is due a refund when they file their return.