Estimated Tax Payments
What is an estimated tax payment?
If you are earning taxable income outside of a regular salary, then the IRS expects you to submit tax payments throughout the year as your earn that income. The IRS requires these payments to be made quarterly: April 15th, June 15th, September 15th, and January 15th.
How do you know if you need to make quarterly payments?
If you receive a W-2 from your employer at the end of the year and that is the only regular income you earn, then typically you will not need to make any estimated tax payments. Your employer will withhold the proper amount of tax and regularly submit that tax to the IRS throughout the year. If you are considered self employed and receive a 1099 or are paid directly by vendors, then you will need to make estimated payments to avoid an IRS penalty.
What if you are a partner or shareholder in a business that files a Partnership or S-Corp return? You will need to make estimated payments on the business income since you need to report the business income on your personal return.
Additionally, the IRS only requires your estimated payments to be 90% of the prior year’s tax liability, which is called the safe harbor tax payment. This 90% minimum guarantees you would not receive a tax penalty at the end of the year, but it does not mean that you won’t have tax due on April 15th. It is always good to talk to your tax advisor in the fall or early winter to make sure you are paying enough in taxes to avoid a large tax bill on April 15th.
If you have further questions on estimated tax payments, contact us and we can help!