What are estimated taxes? 

Jul 26, 2023

If you gain money that is not automatically taxed, including self-employment income, you may need to make estimated tax payments throughout the year. Estimated tax payments mean sending money to the IRS based on how much you think you’ll owe in taxes for the whole year. They help you avoid penalties and interest for paying too little or paying your taxes late.

Who Needs to Pay Estimated Taxes?

Generally, you should make estimated tax payments if you expect you’ll owe $1,000 or more in taxes when you file your return. This applies to people filing as individuals, including people who are self-employed, partners in partnerships, and shareholders in S corporations. Companies need to pay estimated taxes if they think they’ll owe $500 or more.

However, there are some exceptions to this rule. For example, you do not have to pay estimated taxes if you have no tax liability for the prior year.

Special Rules for Certain Taxpayers

Note that estimated tax rules are different for farmers, fishermen, and certain higher-income taxpayers. You can find more information about these special rules in Publication 505, Tax Withholding and Estimated Tax.

How to Calculate and Pay Estimated Taxes?

To figure out how much estimated tax you need to pay, you have to estimate your gross income, taxable income, taxes owed, deductions, and credits for the whole year. You can use last year’s tax return as a starting point, but make sure to account for any changes in your income or expenses that will happen this year.

You can use Form 1040-ES to figure out your estimated tax payments if you are a U.S. citizen or resident alien. If you are a nonresident alien, you need to use Form 1040-ES (NR).

Deadlines and Methods for Paying Estimated Taxes

You need to make four estimated tax payments per year. The deadlines for these payments are usually April 15, June 15, September 15 of the current year, and January 15 of the following year. However, these dates may vary depending on weekends and holidays. 

You can pay your estimated taxes electronically using the IRS Direct Pay service or the Electronic Federal Tax Payment System (EFTPS). You can also pay by check or money order using the payment vouchers included in Form 1040-ES or Form 1040-ES (NR).

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