If you’re like most taxpayers, you receive salary and wages from your employer and never have to worry about making estimated tax payments.
Even if you receive additional income, such as interest and dividends, stock gains, or freelance income, the income tax withheld from wages usually covers your total income tax.
If you have significant income other than wages, all you need to do is increase the amount withheld from your pay so your taxes are covered.
If you have little or no income tax withheld from wages and earn significant other income, however, you may need to make quarterly estimated tax payments to the Internal Revenue Service (IRS).
Otherwise, you could owe interest and penalties when you file your tax return.
If you have taxable income as a freelancer. small business owner, entrepreneur, or investor, you should calculate your estimated tax and determine if you need to make quarterly payments.
You may also need to make estimated tax payments if you have gambling income, unemployment benefits, or taxable retirement plan withdrawals.
Don’t worry about estimated tax payments if you expect to owe only a small amount of tax. You should only pay quarterly estimated tax payments if you anticipate a tax bill of at least $1,000 when you file.
Even if you owe more than $1,000 when you file, you won’t pay a penalty if your total income tax withholding and timely estimated tax
payments equal at least 90 percent of the tax shown on this year’s return, or 100 percent of the tax shown on your previous year’s tax return.
This is called the “safe harbor amount.”
The safe harbor provision is especially helpful if your income fluctuates significantly or if you won’t know for sure how much profit you’ll make for the year until you complete year-end calculations.
If you think you may need to make estimated tax payments, use TaxAct to calculate those amounts. TaxAct can help you estimate your payment based on the worksheet calculation or your tax liability for the previous year.
Note: Farmers and fishermen get special consideration for estimated tax payments. You only have to pay 66.6 percent of the current year’s estimated tax liability if two-thirds of your gross income is from farming or fishing.
If you have zero tax liability for the previous year and you were a U.S. Citizen or resident alien all year, you don’t have to make estimated payments for this year.
However, if you have significant income for this year, you may choose to make quarterly payments anyway so you’re not faced with a huge bill at tax time.
Filing dates for federal quarterly estimated tax payments.
Estimated tax payments are due on a quarterly basis, however, the due dates are not perfectly spaced throughout the year.
The quarterly estimated tax payments due dates are as follows: