Estimated tax payments come into play for taxpayers who do not have taxes withheld from their paychecks throughout the year. Contrary to what you might have thought, the IRS considers taxes "pay as you go" throughout the year. This is accomplished through periodic withholding for taxpayers on a typical payroll, and through estimated quarterly tax payments for the self-employed who have no payroll withholding. At year-end, your tax return calculates your total tax owed for the year. Any taxes previously paid are deducted from tax owed, leaving a balance owed, or in case of overpayment, a tax refund.
When are estimated quarterly tax payments due?
Estimated tax payments are due four times a year.
If you are filing as an individual, and assuming that your fiscal year aligns with the calendar year, estimated tax payments are due on the following dates:
- April 15
- June 15
- September 15
- January 15 of the following year
For corporations, estimated tax payments are due as follows:
- April 15
- June 15
- October 15
- December 15
Note that these due dates do not coincide with calendar quarters, so make sure to take note and plan carefully. If a payment is due on a weekend or legal holiday, it becomes due on the next business day. You may pay at more frequent intervals, or any intervals that suit your needs, as long as the full amount due for each period is paid by the due date for that period. You may also choose to pay the full year's estimated taxes by April 15th of the current year. And of course, if you've already filed your taxes and paid what you owe before the last payment is due in January, you can skip that installment.
The IRS charges penalties and interest for underpayments, late payments, and missed payments. Even if your annual tax liability turns out to be a refund, you can still incur penalties for any individual payment that was late or short paid during the year. Staying on top of the due dates is crucial to avoid these unnecessary expenses.
How do I pay estimated quarterly tax payments?
Once you have calculated your payment amount, you can pay in one of several ways:
- Submit the payment online through the Electronic Federal Tax Payment System
- Direct debit from your bank account, available only when you e-file your return
- Pay with a paper check, making sure to include the payment voucher that is included with Form 1040-ES for individuals and Form 1120-W for corporations.
Although dealing with taxes four times a year in addition to filing your annual return may sound burdensome, paying estimated taxes throughout the year will actually ease your tax burden at year-end, while simultaneously ensuring that you avoid unnecessary and costly penalties.