How to Pay Estimated Taxes
Paying estimated taxes is a crucial responsibility for self-employed individuals, freelancers, and those with income not subject to withholding taxes. Estimated taxes are typically paid quarterly to the IRS (Internal Revenue Service) and, in some cases, to state tax authorities to cover income tax and self-employment tax liabilities. Here’s a guide on how to pay estimated taxes:
In most cases, you must pay estimated tax if both of the following apply.
1. You expect to owe at least $1,000 in tax (for 2024), after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:
a. 90% of the tax to be shown on your previous year tax return, or
b. 100% of the tax shown on your prior year tax return.
To determine if this applies to you, first you need to estimate what your estimated tax liability is for the year and then subtract out the withholding made from other sources.
Current Sources of Tax Withholding
Tax withholding can be done from many different sources though each will vary on its implementation:
- Paycheck Tax Withholdings: For people who are employed and paid as W-2 employees, Federal, State, and Local tax withholding is mostly covered through deductions from your payroll. Adjusting how much is withheld is done through IRS Form W-4. If you are withholding too much or too little, the IRS has a helpful calculator that will generate a populated W-4 form to adjust your withholdings.
- Social Security Tax Withholding: If you are collecting Social Security benefits, you can withhold Federal taxes only using IRS Form W-4V which allows you to withhold a fixed percentage of your benefits (7%, 10%, 12%, and 22%). The completed form is then mailed or faxed into the Social Security Office
- Pension Tax Withholding: If you receive a pension you can typically withhold Federal and State taxes using IRS Form W-4P though your pension may have their own form for the election.
- Qualified Retirement Account: If you take a distribution from a qualified retirement plan (Traditional IRA, 401k, 403b, 457, etc.), you can request the custodian to withhold Federal and State taxes.
You cannot withholding from the following sources:
- Brokerage Accounts
- Bank Accounts
- CD’s
When You Should Pay Estimated Taxes
If you’ve determined that you need to pay estimated taxes, then you need to know when these are paid.
Estimated taxes are typically due quarterly, with payment deadlines on April 15, June 15, September 15, and January 15 of the following year. If the 15th falls on a weekend or holiday, the due date shifts to the next business day.
For the current dates that these fall on, see Quarterly Estimated Tax Due Dates
How You Pay Quarterly Taxes
Tax Payment Methods and Estimated Tax Payment Methods
There are two primary payment methods available to you to make estimated quarterly payments:
- Directly Online: You can pay your estimated taxes directly on the IRS.gov website. This method is fast, secure, and provides you with a number of payment options including ACH, Debit Cards, Credit Cards, or Digital Wallets.
- To pay without creating an account, Payments | Internal Revenue Service (irs.gov)
- To pay through your IRS Online Account, Your Online Account | Internal Revenue Service (irs.gov)
- Check or Money Order: You can mail a check or money order to a designated address for your location. With this option, you’ll also mail Form 1040-ES which is the payment voucher to ensure the payment is applied to you. Typically, these vouchers are provided by accountants or tax preparation software if needed.
- To find the address you mail to, see Form 1040-ES (irs.gov)
Either method you choose, you should keep records of your payments in your tax file for year end when you actually file your taxes. While you should receive back any overpayments you make if you forgot you already paid the taxes through estimated payments, it’s best not to go down that route.