The IRS prefers a “pay-as-you-go” system for owed taxes. Rather than have a big payment at the end of the year, the IRS requires individuals to assess their own tax payments and pay the IRS on a quarterly basis. This applies to small businesses and the self-employed. HOWEVER, this only applies to those who would expect to owe tax anyway. Read on for these details.
IRS Due Dates For Estimated Taxes
As a general rule, the IRS expects quarterly tax payments due about 15 days after the end of that quarter.
- Payment 1 – January 1 to March 31 – due April 15, 2021
- Payment 2 – April 1 to May 31 – due June 15, 2021
- Payment 3 – June 1 to August 31 – due September 15, 2021
- Payment 4 – September 1 to December 31 – due January 18, 2022
You can use IRS form 1040-ES, Estimated Tax For Individuals, to work out your expected payment.
If you own a small corporation, you can use form 1120-W to estimate your corporate taxes.
Special rules apply for farmers, fishermen, and some high-income citizens. Use IRS Publication 505 if you fall into one of these special categories.
If you are regularly in a position to make quarterly tax payments throughout the year, the IRS can and will pursue the debt. In some cases, you may even be charged a penalty if the IRS finds you owe withholding or estimated tax payments, and you underpay or pay late.
How come you never heard of this before?
If you’re working in any kind of wage-earning or salaried position, your employer typically withholds part of your paycheck for you. This is a set amount per paycheck determined when you filled out your W-4. If there’s a refund at the end of the year, it figures from your withholding. If you are in this position, you don’t have to worry about this!
The estimated tax policy is a work-around for those who earn income but do not have an employer, such as the self-employed professional, sole proprietors, corporate shareholders, business partners, and other self-sufficient individuals. There are yet more exceptions to these rules.
As a *basic* rule of thumb, if you owed no taxes the previous year (factoring in credits, refunds, etc.) then you are likely fair to assess your tax liability to be zero. However your situation can change, so be sure to stay abreast of your tax situation.
You Do Not Have To Pay the IRS Estimated Tax IF These Apply:
- If you are an individual who expects to owe less than $1000 for the entire current year
- If you represent a corporation which expects to owe less than $500 for the entire current year
- If you had no tax liability for the entire previous year, as a US citizen for the entire previous year
Remember that tax liability is figured after deductions, credits, and all. Households which routinely receive an Earned Income Credit or Child Tax Credit usually don’t have any concern with paying estimated taxes. However, you can always go through the 1040-ES worksheet to figure your taxes for yourself. It’s a short form, should take maybe 20 minutes to go through.
There are many more exceptions to paying estimated quarterly taxes
For example, the current COVID-19 pandemic necessitated the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allows partial deferred payment of Social Security tax. These policy changes come and go, so bookmark the IRS resource for Estimated Taxes to keep up with changes.
The IRS Has An App For Tax Calendar Planning
— IRSnews (@IRSnews) June 7, 2018
The IRS hosts a handy online app for planning your tax payment schedule. Just go to IRS.gox/taxcalendar and follow the instructions from there. You get a nice monthly calendar grid and a worksheet to track your situation.
Need help? Speak to an expert tax attorney or check out our help guide
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