Estimated Tax Payments Easy Guide 2023
You may be required to make anticipated tax payments if you earn money that is exempt from withholding or if the amount withheld is less than what you owe.
Estimated tax payments are required on April 18 (for 2023), June 15 (for 2023), and September 15 (for 2023). (for 2023).
Who needs to make estimated tax payments?
Every individual or corporation with taxable income who is not subject to withholding must make estimated tax payments.
Estimated tax payments may be necessary if:
- You are self-employed and have non-taxable income, such as freelance employment, tips, or rental property.
- Your company fails to deduct enough income tax from your paycheck (or you did not get any compensation).
Figuring when and how to pay
The IRS isn’t the only organization that wants to take your money. If you owe state income taxes, you can also contact your state’s revenue agency.
You will be required to make approximated payments on their behalf, and they will not be hesitant about reminding you of this.
Estimated tax payments can be made by mail or online, using a credit or debit card, a check, or money order (although let’s be honest: who uses checks anymore?).
The amount owed is calculated using federal income tax withholding and other data provided to the IRS during the current fiscal year.
If those figures don’t line up with what you owe for 2022, you may need to adjust the amount withheld from each paycheck going forward.
Do I need to pay estimated taxes?
If you expect to owe at least $1,000 in income tax, you must pay estimated taxes when you file your return (or other tax types, like self-employment or alternative minimum).
You don’t have to pay estimated taxes if your withholding taxes are greater than the income tax you expect to incur for the year.
Tax Estimated Payments
Which option should I choose?
The IRS requires you to pay income tax regularly, but not in one large payment.
You have the option of paying the tax you owe for the year in four equal payments or paying half of what is due from each paycheck. As an example:
If you earned $40,000 per year and owed $4,000 in taxes at the end of each month, your expected monthly payments would be $200.
Your company will deduct these sums from your paychecks. If instead of paying all at once when filing your return at the end of April and May (and thus receiving a refund), you paid based on estimates during those months, there will be no need for an additional payment after April 15 because it will have been handled automatically by your employer via withholding.
How should I calculate how much I owe?
Follow these procedures to find out how much you owe in estimated taxes:
Fill out Form 1040-ES. Use form 1040-ES to calculate your annual tax payments if you are self-employed or run a company.
This form will assist you in determining if you have adequate withholding from your earnings and other sources of income to avoid further fines.
Utilize tax software or consult a tax specialist. Instead of utilizing the IRS forms, you may utilize online tax preparation software or hire someone to prepare your return for you.
Because they do not require an appointment, these third-party solutions are frequently less expensive than employing an accountant or attorney – and they will allow consumers to simply compute their estimated taxes before sending them online through email or fax.
What if I don’t pay?
If you do not pay, you may be assessed a penalty. Assume the IRS thinks your tax bill will be $1,000 or more after deducting your withholding and any credit for excess advance premium tax credit payments. In that instance, federal law compels you to make estimated tax payments.
The IRS invoices people quarterly depending on their expected yearly income taxes. The amount they bill is known as a “pay-as-you-go” (PAYGO) assessment.
If your withholding does not cover your whole tax burden for the year, or if additional credits are claimed that lower the amount of taxes payable by more than 10%, you must make estimated tax payments.
If any of the following events occurs, your needed payment will increase:
- You received additional wages during the year from new employers
- You changed jobs during the year and started working overtime (or previously untaxed tips) with little or no change in salary
Should I pay in equal amounts?
While paying in equal amounts is the most popular option, whatever method you employ must be based on your income, deductions, and exemptions.
To discover how much-anticipated tax you should pay, the IRS suggests utilizing its online tax calculator. Further information regarding estimated taxes may be found on the IRS website here.
For fishermen and farmers
Estimated tax payments for fishermen and farmers are due on April 15, June 15, September 15, and January 15.
If you expect to owe at least $1,000 in taxes, you must make estimated payments of federal income tax after deducting withholding and refundable credits in many situations.
Nevertheless, if your self-employment income does not include workplace benefits (such as group health insurance), you do not have to make anticipated tax payments for the months in which that income is earned.
Estimated taxes for the future quarter are paid on the 15th of each month (i.e., April 15 is due on March 20). If the date occurs on a weekend or a holiday recognized by the IRS, such as:
- Birthday of George
- Washington (the third Monday in February) and Memorial Day (May 28). Instead, your payment will be on the following business day.
Penalties may apply if your payment is more than ten days late; however, if there are extenuating circumstances such as military service or a reasonable cause such as illness or natural disaster beyond your control, please contact us directly so we can discuss possible solutions with an experienced representative who can help ensure everyone gets what they need while keeping things fair across all taxpayers.
If you have income that’s not subject to withholding or the withholding
Taxes are estimated to be paid in four installments. Estimated tax payments can be made using Form 1040-ES, Estimated Tax for Individuals, or by mail.
You can also pay by phone or online using the Electronic Federal Tax Payment System (EFTPS), a free service provided by the IRS.
- First installment: By January 15, 2023
- Second installment: Taxes are usually due on April 15th (or April 17 if you file for an extension). If your income exceeded $100,000, you must make this payment on May 31 rather than April 15.
- Third installment: June 17
- Fourth installment: September 17 or September 18 if you filed for an extension
Second installment: Estimated taxes are typically payable on April 15th (or April 17 if you file for an extension). If you earned more than $100,000, you must make this payment on May 31 rather than April 15.
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