Individuals who work for themselves — freelancers, S corporation shareholders, etc. — make income that isn’t subject to income tax withholding from the IRS or the State of Maryland. However, these people still have to pay income taxes on their earnings.
Unfortunately, every year, millions of these individuals find themselves totally unprepared when they receive their tax bill from Uncle Sam, and many of them wind up paying additional penalties and fees as a result.
The best way to avoid these unpleasant surprises: making estimated quarterly tax payments.
What Are Estimated Quarterly Taxes?
Most Americans have income tax withheld from their paychecks, but some don’t. The IRS requires individuals who don’t have taxes withheld to pay estimated taxes each quarter, usually in equally-divided installment payments.
Generally speaking, if you are self-employed or do contract work for other businesses and you anticipate owing more than $1,000 in taxes, you should be paying estimated quarterly taxes (which cover income taxes, self-employment taxes, and the alternative minimum tax). This way, you can avoid underpaying when you file your annual returns.
Compensation from work isn’t the only income that can trigger estimated quarterly taxes, either. You need to consider any type of income that isn’t subject to withholding — including alimony, prizes, or capital gains, among others — when paying estimated quarterly taxes.
Note that estimated tax requirements work differently for farmers and fishers. Please follow this link to learn more about the rules for these professions.
Do You Need to Pay Estimated Quarterly Taxes?
Ask yourself the following questions. If you answer yes to any of them, then you must make estimated tax payments using Form 1040-ES.
- Will you owe more than $1,000 after subtracting your federal withholding from the total amount of tax you expect to owe?
- Will your total withholding amount be less than 90% of the taxes you will owe when you file your returns?
- Will your total withholding amount be less than 100% of the tax owed from the previous year’s returns (or 110% if your income from last year was over $150,000, or over $75,000 if you’re married and filing separately)?
When Are Estimated Quarterly Taxes Due?
Although exact dates might change, the IRS recommends you pay your estimated taxes once per quarter at roughly the same times each year.
|Payment||Due Date||Income Period|
|1||April 15||Jan. 1 – March 31|
|2||June 15||Apr. 1 – May 31|
|3||Sept. 15||June 1 – Aug. 31|
|4||Jan. 15 of next year||Sept. 1 – Dec. 31|
Most taxpayers will want to pay in four equal installments. However, if your income varies throughout the year, your estimated quarterly taxes may fluctuate. Annualized income estimated payments allow you to pay only for quarters where you generated income, which makes them especially helpful for seasonal employees. Unfortunately, to make annualized income payments, you’ll have to complete a separate tax form.
This system is more complicated than paying in equal installments, so please contact S.H. Block Tax Services with any questions or for help setting up your annualized income estimated payments.
How Can You Pay Your Estimated Quarterly Taxes?
Most of the standard payment options for annual returns are also available for estimated quarterly taxes, including:
- Direct Pay
- Debit or credit card (convenience fees apply)
- Cash payments (limit of $1,000 per day per in-person transactions)
- Electronic Federal Tax Payment System (EFTPS)
- Electronic Funds Withdrawal (EFW)
You can also mail payment to the IRS or the State of Maryland if you prefer. Make a check or money order out to “United States Treasury” — never send cash. You’ll also need to attach your 1040-ES voucher and mail your payment prior to the deadline listed in the table above.
Determining and paying estimated quarterly taxes might seem like a nuisance at first, but it will become easier over time as you perfect your system and get accustomed to your payment schedule. And if you do it right, you’ll never have to worry about paying additional tax fees or penalties again.
S.H. Block Tax Services Can Help You Create Your Annual Tax Plan and Make Estimated Payments
If you owe taxes from previous years, are concerned about how to set up estimated payments, or are dealing with previous liabilities, please contact S.H. Block Tax Services by calling (410) 793-1231 or completing this brief form. We have achieved an A+ rating with the Better Business Bureau based on our decades of work assisting taxpayers in Maryland, and we offer free consultations where we can discuss your tax issues and work on creating a plan to resolve your problems together.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.