If you pay taxes, you likely know that the IRS deadline for filing your annual personal tax return is typically April 15. But if you pay quarterly estimated taxes, you may have forgotten that your first quarter estimated tax payments must be made by that same personal filing deadline. Beware – you may face penalties if you don’t.
What are quarterly estimated taxes?
Quarterly estimated taxes are payments made to the IRS based on non-employee income you believe you will make in the coming year. Many state and local tax authorities also collect estimated quarterly taxes.
Who must pay quarterly estimated taxes?
Individuals who must make estimated tax payments include:
- Sole proprietors (business consultants, marketing professionals, Airbnb owners, athletic coaches, graphics designers, writers, etc.)
- Independent contractors (including Uber and Lyft drivers)
- Partners (including professional service companies)
- S corporation shareholders
- Small business owners who have an S corporation, C corporation, or LLC
- Those with capital gains, interest, or dividend income
Essentially, anyone who expects to earn more than $1,000 in non-employee income, after subtracting withholding and refundable credits, must make quarterly estimated payments. Note: there are special rules for farmers and fishermen, as well as for certain household employers.
Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when they file their return.
How do I pay quarterly estimated taxes?
- Estimate what your income for the coming year will be
- Divide it by 4
- Fill out the IRS voucher for quarterly estimated payments
- Send the voucher along with payment by check or money order to the IRS by the due date; online payments can be made without a voucher
Calculating your estimated taxes can be done by filling out Form 1040-ES. The simple way to ensure that you pay what you owe is to submit at least 100% of the tax you paid the previous year, unless you’re reasonably sure that you are going to earn significantly less. If you think you’re going to make less, calculate about how much and try to pay at least 90% of that amount.
When are quarterly estimated taxes due?
Estimated tax payments are due to the IRS by the following four deadlines throughout the year:
- January 15 – For taxes on eligible income from Q4 of the previous year
- April 15 – For taxes on eligible income from Q1 of current year
- June 15 – For taxes on eligible income from Q2 of current year
- September 15 – For taxes on eligible income from Q3 of current year
If these dates fall on a weekend or holiday, the estimated tax payments would then be due on the next business day.
What if I miss a deadline?
If you owe estimated taxes, you should file them on time. Otherwise, you could be on the hook for late payment penalties. The IRS will charge penalties if both of these apply:
- You didn’t make estimated tax payments during the year
- The amount you withheld from other income is less than 90% of your tax bill
Remember that states and municipalities may have their own rules and penalty structures when it comes to missing estimated payments.
If you overpay your estimated taxes, you should get that money back as a tax refund at the end of the year.
Calculating estimated tax payments can get a little complicated. A knowledgeable tax professional can help you with estimating your tax or answering any other questions you may have.