Everyone is required to pay taxes as they earn or receive income during the year, either through withholding or estimated tax payments.
According to the IRS, those taxpayers who have income that is not subject to automatic withholding must submit quarterly estimated tax payments.
Learn more about federal estimated taxes, who must pay them, when and how to pay them.
What are Estimated Taxes?
Estimated tax is the method used to pay income tax that is not subject to withholding. This income includes earnings from interest, dividends, alimony, self-employment income, capital gains, prizes and awards.
The estimated tax is basically a quarterly tax payment for the year based on the income declared by the taxpayer in the period.
Who must pay Estimated Taxes?
Individuals, including sole proprietors, partners and S corporation shareholders, are required to make estimated tax payments if:
- They expect to owe tax of $1,000 or more when their return is filed.
- They owed taxes in the previous year.
Generally, you may be required to make estimated tax payments if:
- You receive income that does not come from an employer, such as interest, dividends, alimony, capital gains, and prizes.
- Taxes are withheld from your salary or pension, but it is not enough.
- You have more than one job, but not all employers withhold taxes.
- You are self-employed.
- You are a representative of a door-to-door or direct sales company.
- You participate in collaborative economy activities in which you do not work as an employee.
If you are a wage-earner, you can avoid estimated tax payments by having your employer withhold taxes from your wages.
How to figure Estimated Tax?
Generally, individuals required to pay estimated taxes use Form 1040-ES to calculate the amount of payment.
To calculate your estimated tax, you must first calculate your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.
You can use the worksheet on Form 1040-ES to calculate your estimated tax. You must estimate the amount of income you expect to earn during the year.
It is important that you estimate your income as accurately as possible to avoid penalties.
When to pay Estimated Taxes?
Taxpayers who are required to pay estimated taxes must make a payment each quarter of the year.
The due date for each quarterly payment goes as follows:
- First quarterly payment – April 15.
- Second quarterly payment – June 15
- Third quarterly payment – September 15
- Fourth quarterly payment- January 15 of the following year.
If these dates fall on a weekend or holiday, the due date is the next business day.
Please note that these rules may vary for farmers, fishermen and people whose income is uneven during the year. For more information, see Publication 505, Tax Withholding and Estimated Tax.
How to Make Estimated Tax Payments?
There are several ways you can pay your estimated taxes:
Online
To pay your estimated taxes online, you must go to IRS.gov/Payments. You will be able to pay by credit card, debit card or direct payment.
By phone
You can also pay your estimated taxes by phone, using your debit or credit card. To do this, call one of the IRS service providers:
WorldPay USA, Inc.
1-844-729-8298 (1-844-PAY-TAX-8TM)
www.payUSAtax.com
Official Payments
1-888-UPAY-TAX™ (1-888-872-9829)
www.pagosoficiales.com
Link2Gov Corporation
1-888-PAY-1040TM (1-888-729-1040)
www.PAY1040.com
Keep in mind that each provider charges a fee that varies depending on the type of card and the payment amount.
Through EFTPS
One of the easiest ways to pay your estimated taxes is through the Electronic Federal Tax Payment System (EFTPS). To use this service, you must be registered online or have received a registration form by mail.
Cash
The cash payment option is provided through retail partners with a maximum of $1,000 per day per transaction. To pay your estimated taxes this way, you must be registered online at www.officialpayments.com/fed, which is the official payment provider for the IRS.
Check or money order
If you prefer, you can also mail your estimated tax payment.
There is a separate estimated tax payment voucher for each due date. The expiration date is displayed in the upper right corner. If you and your spouse plan to file separate returns instead of filing a joint return, you must file separate vouchers.
To complete the voucher, follow these steps:
- Write your name, address, and SSN in the space provided on the estimated tax payment voucher. If you are filing a joint voucher, you must also enter your spouse’s name and SSN.
- Enter only the amount you are sending by check or money order in the box provided on the estimated tax payment voucher. In order to help process your payment accurately, enter the amount on the right side of the check like this: $XXX.XX. Do not use hyphens or lines.
- Make your check or money order payable to “United States Treasury”.
- Enter “2020 (or applicable year)
- Form 1040-ES” and your SSN on your check or money order.
- Attach, but do not staple, your payment with the estimated tax payment voucher.