Paying Quarterly Estimated Taxes

The US Tax System requires tax payers to “pay as you go” being required to pay at least 90% of taxes throughout the year through withholding, estimated, or additional tax payments (or any combination of).

If you don’t then you may owe an Estimated Tax Penalty

Who needs to make estimated tax payments?

Any individual, including sole proprietors, partners and S corporation shareholders who:

1. Expect to owe at least $1,000 when they file their tax return; or
2. They owed tax in the prior year

When to make payments

The Tax System has four payment periods (1^st quarter, 2^nd quarter, 3^rd quarter, and 4^th quarter). Taxpayers must make a payment each quarter.

Due Dates:

1^st Quarter- April 15

2^nd Quarter- June 15

3^rd Quarter- September 15

4^th Quarter- January 15

*If it falls on a holiday or weekend then the deadline will be the next business day.

How to Pay

Form 1040-ES (Estimated Tax for Individuals)

Can pay online, by mail, or phone.

Estimated Tax Penalty

Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

How much is the penalty?

8% annual interest (compounded daily) on the outstanding tax liability.

Example: You made quarterly estimated tax payments of $2,500 per quarter for a total payment of $10,000 for the year. As it turns out, you had a total of $20,000 in tax liability for that year. This is over $1,000 in taxes, and less than 90% of the tax was paid. You would be penalized 8% interest on the $10,000 outstanding tax liability until paid.