If you earn income not subject to federal withholding taxes, such as from freelancing or rental properties, you’ll need to pay estimated taxes four times a year to avoid penalties. These payments are due on April 15, June 17, September 16, and January 15 of the following year. You may also need to make estimated tax payments if you expect to owe $1,000 or more in taxes when you file your return and fall into certain categories, such as being an independent contractor or receiving other sources of income like dividends or alimony.
To calculate your estimated taxes, you can estimate the tax you’ll owe for the year and send one-fourth to the IRS each quarter if your income is steady. If your income varies, you can base your payments on your income and deductions from the previous quarter using the IRS Estimated Tax Worksheet. If you overestimated your earnings, you can receive a refund by completing a 1040-ES form, and if you underpaid, the form can help you determine what you still owe. Payment can be made online through the IRS website using various methods.
In addition to federal estimated taxes, you may also need to pay estimated state taxes if your state levies income taxes. Deadlines for state payments are typically the same as for federal taxes. Failure to pay estimated taxes on time may result in penalties, especially if you owe more than $1,000 after subtracting withholdings and credits, or if you paid less than 90% of the tax for the current year through estimated taxes. Certain exemptions exist for those with very modest incomes or who meet specific criteria, such as having net earnings of $400 or less for the quarter, or having a total tax of zero the previous year and not being required to file a tax return.
To avoid penalties, it’s essential to keep track of your income and make timely estimated tax payments. Filing your estimated taxes correctly and on time can help you avoid financial burdens on tax day and prevent IRS self-employment penalties. Be sure to consult the IRS guidelines or a tax professional for personalized advice on estimating and paying your taxes. Stay informed about your tax responsibilities and deadlines to stay compliant with federal and state tax laws.
