We all know that we have to pay taxes on any type of income we earn. For a good portion of the population, we have those taxes taken right out of our paycheck. For others, you have to make those tax payments yourself. These are called estimated tax payments. These payments need to be made each quarter. These quarterly payments help you avoid owing a large amount when you file your federal tax return. The deadline for 2020’s 4th quarter estimated tax payment is coming up soon, so it is important that if you are needing to make a payment, you do it by the deadline!
Who Needs to Make Estimated Tax Payments?
People who don’t withhold taxes on their paychecks are generally the people who have to make estimated tax payments if they expect to owe $1,000 or more in taxes when they file their federal tax return. This can include contractors, sole proprietors, partners, and S corporation shareholders. Corporations have to make estimated tax payments if they think they will owe $500 or more. Taxpayers generally who have income such as interest, dividends, alimony, self-employment income, or capital gains have to make estimated tax payments as well. You also may have to make estimated tax payments if you aren’t withholding enough.
How Do You Figure Out Your Estimated Tax Payment?
When you are trying to figure out how much you should pay each quarter, you can use Form 1040-ES. When you are trying to calculate your estimated tax payment, there are things you must factor into your calculation. Here are a few:
- Your expected adjusted gross income
- Taxable income
- Tax deductions
- Tax credits
You can also use your prior year’s federal tax return as a guide. You will need to try and figure out the income you expect to make this year. You can recalculate each quarter if you think you are overestimating or underestimating. You want to try to estimate your income as accurately as possible so you can avoid penalties.
How Do You Make Estimated Tax Payments?
You need to pay your estimated tax payments each quarter on time to avoid getting hit with interest or penalties. For 2021, here are the deadlines:
- 2020’s 4th quarter payment: January 15th
- 2021’s 1st quarter payment: April 15th
- 2021’s 2nd quarter payment: June 15th
- 2021’s 3rd quarter payment: September 15th
You can make your payment several pays. You can pay by sending in the Form 1040-ES by mail. You can make your payment online here. Or if you would like to, you can pay it using your smartphone on the IRS2Go app. You can also use the Electronic Federal Tax Payment System (EFTPS). It is the easiest way for individuals as well as businesses to pay federal taxes. You can make all of your payments including federal tax deposits (FTDs), installment agreement, and estimated tax payments using EFTPS. If it’s easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you’ve paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments.