One question I hear often is whether a taxpayer needs to pay the Internal Revenue Service (IRS) estimated tax payments throughout the year. Estimated tax payments—also known as quarterly tax payments—are typically made for the current tax year by individuals, including sole proprietors, partners and businesses that do not have their taxes withheld in paychecks. In this post, we’ll look a little more in depth at quarterly tax payments.
Generally, individuals need to make estimated or quarterly tax payments if they expect to owe tax of $1,000 or more when their return is filed. Estimated taxes are calculated using IRS Form 1040-ES to determine the taxes they will owe. Corporations typically use Form 1120-W to figure estimated tax. Use your adjusted gross income, taxable income, taxes, deductions and credits for the year you are calculating. If your income for the year is close to what it was the previous year, you could use the prior year’s federal tax return as a guide.
It’s important to estimate your payments as close as possible in order to avoid under-payment penalties. Typically, most taxpayers can avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
When are estimated tax payments due?
Estimated taxes are divided into four quarterly payments. Below are the federal quarterly estimated tax payment deadlines for tax year 2020. The deadlines are generally the same for each year.
April 15, 2020 – Quarter 1 Taxes (January 1 – March 31)
June 15, 2020 – Quarter 2 Taxes (April 1 – May 31)
September 15, 2020 – Quarter 3 Taxes (June 1 – August 31)
January 15, 2021 – Quarter 4 (September 1 – December 31)
How do I pay federal estimated taxes?
There are various methods for making quarterly estimated tax payments, with the following being the most common.
- If you overpaid on your 2019 tax return, you can apply that overpayment amount as a credit to your 2020 estimated taxes
- Mail your payment with payment voucher
- Pay by phone or online
- Pay with electronic funds withdrawal with your 2019 e-filed return
Visit the IRS website for more information about how to pay and to obtain your payment vouchers.
How do I find out if I need to pay estimated taxes for previous years?
If you’re not sure whether you owe the IRS quarterly tax payments for previous tax years, you can download a transcript of your past tax returns online. This will tell you if you’ve paid estimated taxes or owe for previous years.
It can be tricky to determine whether you owe estimated taxes, but it’s important to stay on top of this so you do not owe the IRS penalties. Consult with a tax attorney or experienced tax professional that can help you navigate quarterly tax payments and work with you and the IRS so you don’t pay more than you owe.
Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.