Quarterly Estimated Tax Payments: What You Need to Know

In the US, income taxes are paid “as you go.” If you’re employed, and you have a W-2, your employer normally withholds a portion of your monthly income for tax purposes. But if you’re not an employee, the IRS still expects you to estimate taxes and pay them on income as you earn it. 

But how do estimated taxes work, and how can you avoid IRS tax debt? Our experienced tax attorneys explain what you need to know below.    

What Are Quarterly Estimated Tax Payments? 

Estimated tax payments are payments you make on income which isn’t already subject to federal tax withholding. 

The IRS typically expects you to make such payments every four months on income earned within each quarter of the financial year––hence why they’re known as “quarterly” estimated tax payments.  

Who Must Pay Quarterly Estimated Tax Payments?

According to IRS rules, individuals may be required to pay estimated tax payments if they expect to owe more than $1,000 in tax when they file their tax return. This means the following individuals can expect to pay quarterly estimated tax payments:

  • Sole proprietors
  • Freelancers
  • Independent contractors
  • Partners
  • S corp shareholders
  • Investors in stocks, options, futures, or cryptocurrency
  • Any individual with income that’s not subject to tax withholding at the source  

If a corporation expects to owe $500 or more tax upon filing its return, then it must also make estimated tax payments. 

Here are some examples of income which may be subject to estimated tax payments:

  • Royalties
  • Capital gains
  • Dividends
  • Prizes or awards
  • Real estate profits
  • Side gigs 

So, even if you’re a regular employee, if you have any income which is not already subject to withholding, you’re liable to pay estimated taxes on this sum.  

When Are Estimated Tax Payments Due? 

Every tax year is divided into four distinct quarters. Here’s a summary of the IRS payment periods and the deadlines: 

  • Jan 1 – March 31: April 15
  • April 1 – May 31: June 15
  • June 1 – August 31: September 15
  • September 1 – December 31: January 15

The exact date is subject to change each year depending on, for example, if the date falls on a weekend or holiday.

Can I Make a Single Estimated Tax Payment?

Sure. You can make a single estimated payment in advance to cover the whole financial year. 

For example, say you expect to owe $10,000 per quarter in a given financial year. You can pay $40,000 in April to cover the June, September, and January payments.

The upside to this approach is that you can get ahead on your tax bill. But remember, it’s just an estimated tax payment. If you overpay, you’ll need to wait for a tax refund to claim your money back. And if you underpay, you could face IRS late payment penalties

Can I Make More Frequent Payments?

Yes! You can pay weekly or monthly, depending on your budgeting needs. This may be helpful for managing cash flow and staying on top of your tax debts.

Not sure the best way to pay? Our team can help you weigh up the pros and cons of making a single payment or quarterly payments.     

How Do I Calculate Quarterly Estimated Taxes?

Well, it depends on how predictable your income is. 

For example, if your income is fairly predictable, you can simply estimate what you owe and send this payment each quarter. You may be able to use the previous year’s figures as a guide. 

Does your income vary? The IRS Form 1040-ES, which you submit with estimated tax payments, includes a worksheet you can work through.  

How Do I Make Quarterly Estimated Tax Payments?

Your first step is to complete an IRS Form 1040-ES. You can then make your payment and send the completed form by one of the following methods:

You can submit a further IRS Form 1040-ES if you need to adjust a payment made. You may also be expected to submit a Form 2210 to explain why you miscalculated the payment.  

What Happens if I Miss a Quarterly Estimated Tax Payment?

Any overdue tax is subject to IRS penalties. In other words, you could face tax debt. But will you always be penalized and, if so, how much will you owe? Well, it depends on why you missed a payment and how much overdue tax you owe. 

Let’s say you pay your entire tax bill in January. You technically missed the April, June, and September payments. If you can show that, for example, you received most of your income late in the year, then the IRS may waive or reduce the penalty. 

If, on the other hand, you simply miss a payment deadline, or the IRS can show that you deliberately withheld payment, you could face steeper penalties. Call Gordon Law immediately if you’re facing tax debt for missed quarterly tax payments, or if you need help with tax planning

What if I Can’t Afford My Estimated Tax Payments?

First, don’t panic. You could have options. For example, it may be possible to apply for a payment plan or even settle for less than you owe (an “offer in compromise”). It’s also possible to negotiate with the IRS to remove or reduce tax debt penalties

It’s crucial that you seek prompt legal advice if you’re concerned about meeting your tax obligations. We’re happy to help you explore your options if you have tax debt concerns. 

Got Estimated Tax Payment Questions? Call Gordon Law!

Confused about quarterly estimated tax payments? Don’t suffer alone! Instead, call the experienced attorneys at Gordon Law. We can discuss your situation, explain your legal rights, and empower you to make the right decision for your goals. Call now or schedule a free, no-obligation first meeting online


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