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How Estimated Quarterly Taxes Work

Learn how and when to pay estimated taxes — plus find out whether you need to worry about them in the first place.
Sept. 24, 2020
Income Taxes, Personal Taxes, Small Business, Small Business Taxes, Taxes
Do You Need to Pay Quarterly Taxes? Here's What to Know
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Depending on the sort of work you do or how you’re paid, you might need to settle your tax bill via estimated quarterly taxes.

Some tax rules have changed due to coronavirus

As part of the U.S. government's ongoing response to the coronavirus, the tax deadline is now July 15, 2020. Learn more about this and what else is different this year for taxpayers.

Who should make estimated quarterly tax payments?

People who aren’t having enough withheld. The IRS says you need to pay estimated quarterly taxes if you expect:

  • You’ll owe at least $1,000 in federal income taxes this year, even after accounting for your withholding and refundable credits (such as the earned income tax credit), and
  • Your withholding and refundable credits will cover less than 90% of your tax liability for this year or 100% of your liability last year, whichever is smaller. (The threshold is 110% if your adjusted gross income last year was more than $150,000 for married couples filing jointly or $75,000 for singles.)

» MORE: Learn how FICA and withholding taxes work on your paycheck

The self-employed. Independent contractors, freelancers and people with side gigs are prime candidates for estimated quarterly taxes, says Bess Kane, a CPA in San Mateo, California. That’s because there’s no tax automatically withheld on their income, she explains.

Landlords and investors (maybe). People with rental income and investments might need to pay estimated quarterly taxes, too — even if their employers withhold taxes from their paychecks.

“Those might not always be calculated into their withholding amount, and then they come up short and end up having to pay an estimated tax penalty and don’t even know what estimated taxes are,” says Thomas Mangold, a CPA in Austin, Texas.

Do you have to pay estimated taxes quarterly?

According to the IRS, you don’t have to make estimated tax payments if you’re a U.S. citizen or resident alien and you had no tax liability for the previous full tax year. And you probably don’t have to pay estimated taxes unless you have untaxed income.

When to pay estimated quarterly taxes

In 2020, the IRS has pushed the annual tax-filing deadline from April 15 to July 15, and that change also applies to some 2020 estimated tax payments.

For 2020, here’s when estimated quarterly tax payments are due:

If you earned income during this periodEstimated tax payment deadline
Sept. 1 - Dec. 31, 2019Jan. 15, 2020
Jan. 1 – Mar. 31, 2020July 15
April 1 – May 31, 2020July 15
June 1 – Aug. 31, 2020Sept. 15
Sept. 1 – Dec. 31, 2020Jan. 15, 2021

» MORE: Learn about important changes to this year’s tax-filing deadline

These dates don’t coincide with regular calendar quarters, so plan ahead. And you don’t have to make the payment due in mid-January if you file your 2020 tax return and pay what you owe by the end of the month.

You can make payments more often if you like, Kane says.

“I think it’s easier to make 12 smaller payments than four larger payments,” she says. “If you owe $1,200 for the year, I would rather pay $100 a month than $300 four times a year. And if we’re talking bigger numbers, it gets pretty extreme.”

How to calculate quarterly estimated taxes

There’s more than one way.

  • You can estimate the amount you’ll owe for the year, then send one-fourth of that to the IRS. For instance, if you think you’ll owe $10,000 for 2020, you’d send $2,500 each quarter. This may work best for people whose income is pretty much the same throughout the year, or for people who have a good idea of what their income is going to be.
  • Another method is to estimate your annual tax liability based on what you’ve already earned during the year. This is often better for people whose income varies. Essentially, you annualize your tax at the end of each quarter based on a reasonable estimate of your income and deductions so far this year. The IRS has a worksheet to help you do the math.
  • Either way, you’ll use IRS Form 1040-ES to show your income estimate and project your tax liability. IRS Publication 505 has all the rules and details, and good tax software will help you fill out the form and do the math.
  • If it turns out that you overestimated or underestimated your earnings, you can complete another Form 1040-ES and refigure your estimated tax for the next quarter. When you file your annual return, you’ll likely need to attach an extra form — IRS Form 2210 — to explain why you didn’t send equal payments.
  • If you paid too much, you can get a refund or apply the overage to future payments.
  • The calculations can get complicated quickly, so it’s a good idea to consult with a qualified tax preparer if you have questions. Plus, there are special rules for farmers, fishermen and certain household employers.

» MORE: Learn what the self-employment tax is and whether you have to pay it


 

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How to pay estimated quarterly taxes

You can mail your estimated tax payments with IRS Form 1040-ES. You can pay electronically as well using the IRS’s Direct Pay system or the U.S. Treasury’s Electronic Federal Tax Payment System, for example. Paying with a credit card carries of fee of around 2%.

You can even pay in cash at certain IRS retail partners.

» MORE: See all the ways you can make a payment to the IRS

What if I blow it off and just deal with it later?

The IRS will charge penalties if you didn’t pay enough tax throughout the year. The IRS can charge you a penalty for late or inadequate payments even if you’re due a refund when you file your tax return.

The IRS might give you a break on penalties if:

  • You were a victim of a casualty, disaster or other unusual circumstance, or
  • You’re at least 62, retired or became disabled this year or last year, and your underpayment was due to “reasonable cause” rather than “willful neglect”

How can I make this easier?

“If you’re married and your spouse has a regular job and is having taxes withheld, he or she may have enough taxes withheld to cover the two of you,” Kane explains.

You can accomplish this by giving his or her employer a new Form W-4, instructing how much tax to withhold from each paycheck. You can change your W-4 any time. If you’re getting a pension or annuity, use Form W-4P.

» MORE: How to fill out and change your W-4

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