Estimated Tax :Who ,When & How to Pay ?

Internal Revenue Code provides that you need to estimate the federal tax liabilities continuously during the current year and make quarterly estimated tax payments to treasury.Basically , the tax rule imposes penalty for not paying at least 90% of total tax obligation for the current year.

Who needs to to pay quarterly estimated tax ?

If you owe $1,000 or more of taxes as per tax return, you will have to pay the estimated tax every quarter. Apart from that ,estimated tax has to be paid by the following types of taxpayers who

  • is self-employed.
  • is an independent contractor.
  • has more than one job but doesn’t have each employer withhold taxes.
  • is a representative of a direct-sales or in-home-sales company.
  • participates in sharing economy activities where they are not working as employees.

Estimated Tax Penalty

W have written a separate article on Penalty for Underpayment of Estimated Tax . You may be facing an estimated tax penalty if your tax payment (including tax withheld ) is less than

  • 90 percent of the tax shown on the return for the current tax year or
  • 100 percent of the tax shown on the return for the preceding tax year

There are special rules for farmers and fishermen about the imposition of penalty for estimated tax shortfall. Please refer IRS Publication 505,for more on penalties for underpayment of tax.

How to Check your estimated tax obligation?

Just use IRS Form 1040-ES, Estimated Tax for Individuals, to figure out estimated tax payments accurately. Generally , IRS also mail Form 1040-ES vouchers with instructions in late March to taxpayers who used this form last year. Secondly , those taxpayers who are subject to withholding tax (like employees, contractors etc) can use the Withholding Calculator on IRS.gov. to see if the tax payment obligation is met before filing of tax return.

Further , an employee who expect to receive long term capital gains or qualified dividends, or employees who owe self-employment tax, alternative minimum tax, or tax on unearned income of minors should use the instructions and worksheets in Publication 505 to check whether they should change their withholding or pay estimated tax.

Quarterly Estimated Tax Due Dates

The four quarterly payments for tax year 2019 need to be made by the date mentioned below:

  • April 15, 2019: the due date for your first quarterly estimated tax (QET) payment of estimated taxes on the income made in January, February, and March 2019.  
  • June 17, 2019: Pay quarterly estimated taxes on the income you made in April and May 2019.
  • September 16, 2019: Pay quarterly estimated taxes on the income you made in June, July, and August 2019 are due on this date.
  • January 15, 2020: Quarterly estimated taxes for the months of September, October, November, and December 2019 are due on this date.

There are many IRS tax tools. You can use IRS tax calendar and also add important dates to your online Calendar by subscribing to the IRS Tax Calendar for Businesses and Self-Employed.

How to pay estimated tax ?

The fastest and easiest way to make estimated tax payment online .Just use IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). For filers paying by check, the check must be made payable to the “United States Treasury.”