1. Who Must Pay Estimated Taxes?
If you expect to owe $1,000 or more in tax for the year after subtracting withholding and refundable credits, you generally must make estimated tax payments. This applies to self-employed individuals, sole proprietors, partners, and S corporation shareholders.
2. Payment Due Dates
Estimated tax payments are due quarterly: April 15 (for Jan-Mar), June 15 (for Apr-May), September 15 (for Jun-Aug), and January 15 of the following year (for Sep-Dec). If the due date falls on a weekend or holiday, the payment is due the next business day.
3. Calculating Your Payments
The IRS recommends paying 90% of your current year tax or 100% of last year's tax (110% if AGI exceeds $150,000) to avoid underpayment penalties. Use Form 1040-ES worksheets to estimate your liability based on projected income and expenses.
4. The Safe Harbor Rule
Paying 100% of the previous year's total tax (110% if adjusted gross income exceeded $150,000) provides a safe harbor. If you meet this threshold, you will not face underpayment penalties even if your actual tax liability for the current year is higher.
5. Annualizing Income Method
If your income is uneven throughout the year, you can use the annualized income installment method on Form 2210. This method calculates required payments based on income actually earned during each period, which can reduce penalties for seasonal income patterns.
6. How to Pay
Pay estimated taxes online at IRS.gov using Direct Pay, EFTPS, or your IRS online account. You can also pay by phone using EFTPS, or mail Form 1040-ES vouchers with a check or money order. Keep records of all payments for your tax return.