It is easier to pay your income taxes if you pay as you earn your income. This is why federal income tax has become a "pay as you go" tax system. If you do not pay enough tax on the income you received during the year, you may owe estimated tax penalties.
You should consider making estimated tax payments during the year if any of the following apply to you:
- You have income from being self-employed
- You have income from rental properties
- You have a large amount of income from interest, dividends, or capital gains
- You have won a sizable award or have gambling winnings
- You have other types of income that taxes were not withheld on
- You had wages as an employee and your employer didn’t withhold enough taxes
Generally, if you expect to owe at least $1,000 in tax for the year, you should make estimated tax payments.
Estimated payments are due quarterly. However, you can choose to make them monthly, weekly, or even on a daily basis if that is the best way for you to stay current on making your payments. The quarterly due dates are as follows:
- April 15th for income earned January-March
- June 15th for income earned April and May
- September 15th for income earned June-August
- January 15th for income earned September-December
** If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that's not a Saturday, Sunday, or legal holiday.
The estimated tax penalty is calculated based on how much is paid by each quarterly payment due date.
The traditional ways to pay include paying by mail or using the IRS original electronic federal tax payment system (EFTPS). To pay by mail, use the payment vouchers Form 1040-ES which are often included with your prior year tax return. The vouchers can also be found at the IRS website. You can enroll in the IRS’ EFTPS online or by phone at 800-555-4477.
The IRS has two more simplified online payment systems where you can make payments as regularly as you like. One is IRS Direct Pay. The other is using the IRS smartphone app IRS2Go.
Credit card payments can be made online or on the phone through third parties. You can find the links and phone numbers for IRS approved credit card processors here. All of these companies charge additional fees to process the credit card payment.
To figure the amount to pay, you will want to use the estimated tax worksheet provided by the IRS for the current year. The estimated tax worksheets can be found here on pages 6-9.