Small business owners, self-employed people, and those who receive earnings such as from rental income, interest, dividends, and other income that are not withheld against should review with their tax professional whether they should make estimated tax payments during the year.
Doing so can avoid an unexpected tax bill and penalties when filing next year.
Taxpayers who earn a paycheck generally have taxes withhold tax from their paychecks. This helps cover taxes the employee owes. On the other hand, some taxpayers earn income not subject to withholding. For small business owners and self-employed people, that usually means making quarterly estimated tax payments.
What to know about Estimated Tax Payments
- Generally, taxpayers need to make estimated tax payments if they expect to owe $1,000 or more when they file their tax return, after adjusting for any withholding.
- Aside from business owners and self-employed individuals, people who need to make estimated payments also include sole proprietors, partners and S corporation shareholders and people involved in the sharing economy.
- Corporations generally must make estimated tax payments if more than $500 is anticipated in owing the IRS.
- Estimated tax due dates are April 15, June 15, September 15, January 15 of the following year unless the IRS changes those dates which it has done over the past two years due to the pandemic.
- Taxpayers use the following forms in making estimated payments to the IRS:
- Taxpayers can make estimated tax payments in various ways, those being:
- Anyone who does not pay at least 90% of the taxes owing in any given year through withholding, estimated tax payments, or a combination of the two will be penalized for any shortfall in taxes paid during the year. The penalty may apply even if there is a refund.
- Most states have similar requirements generally with the same due dates with the exception of Hawaii which does most everything quite oddly.