Estimated Tax Payments

What are Estimated Tax Payments? 

Estimated tax payments are periodic payments made to the IRS by individuals and corporations that do not have taxes automatically withheld from their income. This applies primarily to self-employed individuals, freelancers, small business owners, and independent contractors. Income from interest, dividends, alimony, capital gains, and prizes may also require estimated tax payments. 

These payments cover not only income tax but also self-employment and alternative minimum taxes. The IRS requires estimated taxes to be paid quarterly- April 15, June 15, September 15, and January 15. Failure to pay on time or in full may result in penalties.  

Who Pays Estimated Tax Payments? 

Estimated tax payments are required for individuals and businesses that do not have taxes automatically withheld from their income. This includes: 

• Self-Employed Individuals & Business Owners – Sole proprietors, partners, and S corporation shareholders must make estimated tax payments if they expect to owe $1,000 or more when filing their return. 

• Corporations – Must make estimated tax payments if they expect to owe $500 or more when filing their return. 

• Prior-Year Tax Liability – If you owed taxes last year, you may need to make estimated tax payments for the current year. 

How to Calculate Estimated Tax Payments 

To calculate estimated taxes, you must determine their anticipated tax liability based on projected income, deductions, and credits. This can be done using IRS Form 1040-ES, which provides worksheets to help estimate tax payments accurately. A common method is to use the prior year’s tax return as a reference and adjust based on current income. 

For example, a freelancer who expects higher earnings this year than last should increase their estimated tax payments accordingly. Conversely, if their income decreases, they can adjust their payments for future quarters. 

Estimated Tax Payment Schedule

Estimated taxes are paid quarterly according to the IRS schedule: 

• April 15 – Covers income earned from Jan. 1 to March 31 

• June 17 – Covers income earned from April 1 to May 31 

• Sept. 16 – Covers income earned from June 1 to Aug. 31 

• Jan. 15 (following year) – Covers income earned from Sept. 1 to Dec. 31 

If these deadlines are missed, you may face penalties, even if you are due a refund at year-end.