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:
- Interest and dividends
- Rental income
- Gains for the sale of assets
Who Pays Estimates Taxes
Sole proprietor, partner, S corporation shareholder, self-employed, independent contractors:
If you are a business owner or self-employed individual and you expect to owe $1000 or more on your next tax return, you will likely owe estimated tax payments.
If you file as a corporation, and you expect to owe $500 or more when you file, you will likely owe estimated tax payments.
Individuals with a tax liability:
If you owe the IRS, you may have to pay in installments with estimated tax payments. If you are employed, you could possibly opt for your employer withholding more taxes from each paycheck.
For farmers, fishermen, household employers, and specific higher taxpayers, different rules may apply.
When To Pay Estimated Taxes
Both business owners and individual taxpayers who need to pay estimated taxes, are required to do 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.
For corporations, you should use Form 1120-W, Estimated Tax for Corporations.
One 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.
Help With Your Estimated Tax Payments
For help estimating your tax payments, give us a call.