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  • Writer's pictureJessica Benjamin

What Are Estimated Tax Payments?

Your income taxes are paid to the federal government differently depending on how you earn your income. If you earn income that is not subject to withholding, estimated tax payments are one way to fulfill your annual tax obligation.

For example, if you are an employee, your taxes are withheld on each paycheck by your employer.

If you are a business owner, self-employed, or have sources of income other than employment, it is your responsibility to estimate the taxes due and make periodic payments to the IRS.

Other sources of income might include:

  • Self-employment

  • Interest and dividends

  • Alimony

  • Rental income

  • Gains for the sale of assets


Who Pays Estimated Taxes?

Sole proprietors, partners, S-corporation shareholders, self-employed individuals, and independent contractors

If you are a business owner or self-employed individual and you expect to owe $1,000 or more on your next tax return, you will likely owe estimated tax payments.

Corporations

Individuals with a tax liability

Note: Different rules may apply to farmers, household employers, and specific higher taxpayers.


When to Pay Estimated Taxes

Both business owners and individual taxpayers who need to pay estimated taxes are required to make payments quarterly. For 2021, the quarterly due dates are:

  • April 15, 2021

  • June 15, 2021

  • September 15, 2021

  • January 15, 2022

If you fail to send in a payment by the due date or if the payment is not enough, the IRS could charge you with a penalty even if you are due a refund on your next tax return.

One alternative is to estimate your tax liability for the year and pay in full by Tax Day, typically April 15.


Calculate Estimated Taxes

To estimate your tax obligation for the year, you can use the IRS Form 1040-ES, Estimated Tax for Individuals.

Corporations should use Form 1120-W, Estimated Tax for Corporations.

Once you have estimated your annual tax obligation, you simply divide that amount by four to determine your quarterly payments.


Electronic Federal Tax Payment System

The Electronic Federal Tax Payment System (EFTPS) is an easy online way to pay estimated federal taxes.

An added benefit to using EFTPS is that you will have access to a history of your payments. You can have a single source archive of how much you’ve paid and when you sent payment.


Need Further Assistance?

For help estimating your tax payments, give our team a call at 985-727-9924.

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