In the U.S., income taxes are collected on an ongoing basis. For many of us, this means that an employer pays federal and state taxes on our behalf by withholding a certain amount from each paycheck.
But if you earn income as a freelancer or receive certain types of non-wage income, you may need to pay what the IRS calls “estimated quarterly taxes.” This includes income from self-employment, interest, dividends, alimony and rent, as well as gains from the sale of assets, prizes and awards.
You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.
In all cases, penalties due to underpayment of tax payments due may be incurred.
Determining If Estimated Payments Are Required
In general, most taxpayers can avoid penalties if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90 percent of the tax for the current year, or 100 (110 for higher income individuals) percent of the tax shown on the return for the prior year, whichever is smaller.
If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. If you are filing as a corporation, you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.
If you receive salaries and wages and you had a tax liability for the prior year, you may have to pay estimated tax for the current year. There are special rules for certain taxpayers such as farmers or fishermen and certain taxpayers with higher incomes.
Adjusting Withholdings
You can avoid the possibility of paying estimated tax or penalties by asking your employer to withhold more tax from your earnings. To do this, you would file a new Form W-4 with your employer, entering the additional amount you want your employer to withhold.
Schedule for Estimated Tax Payments
For estimated tax purposes, the year is divided into four payment periods, each with a specific payment due date. For the 2024 tax year, these dates are:
April 15, 2024
June 17, 2024
September 16, 2024
January 15, 2025
If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
Calculating Estimated Tax
Calculating estimated tax requires consideration of expected adjusted gross income, taxable income, taxes, deductions and credits for the year. Your CPA or tax preparer can calculate what your estimated tax will be for each quarterly period, and how much you will need to pay for that period.
How to Pay
CPAs or tax preparers can provide you with paper voucher slips to send for each payment. In addition, individuals and businesses can pay their estimated federal taxes using the Electronic Federal Tax Payment System (EFTPS) or via online direct pay, offered at no charge by the IRS.
Please contact us for more information about estimated tax returns, and for assistance in preparing your return at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
