What Is It?
Estimated (quarterly) tax payments are the actual installment payments you forward to the IRS on a quarterly basis. Here is a step-by-step procedure to use when calculating the installment amounts.
Caution: This article discusses the estimated tax rules that apply to individuals. For information regarding the estimated tax rules that apply to corporations, see IRS Publication 542, Corporations, and the instructions for IRS Form 1120-W, Estimated Tax for Corporations.
Projecting Your Expected Tax For The Year
In order to calculate your quarterly estimated tax payments during the year, you first need to project your total estimated tax for the year. In order to determine your projected tax, you need to arrive at four figures for the current tax year: your expected adjusted gross income, expected taxable income, expected taxes, and expected credits. These four figures enable you to determine your total expected tax for the current year.
How to Figure Your Installment Payments
After projecting your tax for the year, you can then proceed to determine your installment payments. There are two methods for determining your estimated tax payments: the regular installment method and the annualized income installment method.
- Regular installment method: You use the regular installment method when your required annual payment doesn't change over the course of the year. Typically, this scenario occurs when you receive your income evenly throughout the year; (your weekly or monthly income remains stable). If you use this method, you simply divide your total estimated tax for the year by four.
- Annualized income installment method: You use the annualized income installment method if you don't receive your income evenly throughout the year. You complete the Annualized Estimated Tax Worksheet to annualize your tax at the end of each estimated tax payment period based on a reasonable estimate of your income, deductions, and other events from the beginning of the tax year through the end of that period. As a result, your estimated tax payment for a given period may be less or more than the amount determined with the regular installment method. This worksheet and instructions are included in IRS Publication 505, Tax Withholding and Estimated Tax.
Tip: If you use the annualized income installment method, you are required to file Form 2210 with your tax return.
When to Pay Estimated Tax
You make your estimated tax payments in four installments, covering four payment periods. You have a specific due date for each period's payment. The periods and due dates are as follows:
January 1 to March 31
April 1 to May 31
June 1 to August 31
September 1 to December 31
January 15 next year
Caution: If you don't pay enough tax by the due date of each of the payment periods, the IRS may impose a penalty, even if you are due a refund when you file your income tax return.
Technical Note: Please note the following technical points:
- If your tax year is a fiscal year rather than a calendar year, your due dates are as follows:
- The 15th day of the fourth month of your fiscal year
- The 15th day of the sixth month of your fiscal year
- The 15th day of the ninth month of your fiscal year
- The 15th day of the first month after the end of your fiscal year
- If an estimated tax due date falls on a Saturday, Sunday, or legal holiday, your payment will be timely if you make it on the next day that isn't a Saturday, Sunday, or legal holiday.
- If you file your Form 1040 or 1040A by no later than January 31 of the following year and pay the remainder of the tax you owe, you don't need to make your January 15, estimated tax payment (assuming that you use a calendar tax year).
- If at least two-thirds of your gross income last year or this year is from farming or fishing, you have a single due date for your estimated tax, January 15 of next year.
How to Pay Estimated Tax
There are four ways you can make estimated tax payments:
Crediting an Overpayment
If you have overpaid tax for a given year, you can apply some or all of it to your next year's estimated tax. You indicate the amount of the refund you want credited to your estimated tax on the appropriate line of Form 1040 or 1040A.
Using Payment Vouchers
You are required to submit a payment voucher from Form 1040-ES with each estimated payment you make. If you paid estimated tax last year, you should receive the current year's Form 1040-ES in the mail. It includes preprinted vouchers with your name, address, and Social Security number. If you didn't pay estimated tax last year, you will need to obtain a copy of Form 1040-ES from the IRS. After you make your first payment, the IRS will send you a Form 1040-ES package with preprinted vouchers.
The Form 1040-ES package has four payment vouchers, one for each due date. The upper-right-hand corner of each voucher has the due date. The package includes detailed instructions for completing the vouchers.
Using the Electronic Federal Tax Payment System
If you wish to pay by direct transfer from your bank account using the Electronic Federal Tax Payment System, call (800) 555-4477 for information. You may also pay by direct transfer from your bank account online. To pay your taxes online or for more information, go to www.irs.gov/e-pay.
Paying By Credit Card
The IRS accepts credit card payment of estimated taxes over the phone and online. See the IRS website or IRS Publication 505 for details. Note that a convenience fee is charged by the approved service providers.
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