A Primer on Federal Estimated Quarterly Taxes for Individual Taxpayers

Woman lying on top of tax papers, stressed

Americans often refer to April 15 as Tax Day, but for a large number of taxpayers “Tax Day” actually comes more than once a year. Some individuals must file and pay estimated quarterly taxes four times over the course of a year in order to comply with their tax responsibilities.

The April 15 deadline applies to everyone; those who receive income that isn’t subject to withholding are subject to additional filing requirements that recur on a (mostly) quarterly basis. Individual due dates are:

  • April 15
  • June 15
  • September 15
  • January 15

If a date falls on a weekend or federal holiday, the due date is moved to the following business day. Failure to file and pay by the deadline triggers penalties and interest that increase each day the payment is late.

Individuals who work as independent contractors, contract workers, sole proprietors, LLC owners and partners, S-corporation shareholders or any other type of self-employment arrangement need to pay quarterly taxes. In addition, individual taxpayers who receive alimony, capital gains, dividends, rents, royalties or other income that doesn’t have taxes withheld before you get the check must make quarterly payments. If you earn income that is or will be reported on any version of Form 1099, welcome to the estimated quarterly taxes club.

There is one exception: if your tax credits or withholding through employee-based work equal or exceed the amount of tax you will owe at the end of the tax year, you don’t have to file each quarter. The IRS only requires quarterly payments for filers whose unpaid tax liability exceeds $1000 annually. This allows individual taxpayers with W-2 income to avoid filing quarterly by adjusting their withholding rates high enough to cover the additional tax owed.

Calculating and Paying Estimated Taxes

The amount of estimated tax is based on – you guessed it – an estimate of income and consequent tax burden accumulated over the entire year. After projecting your taxable income for the year, figure the associated tax on that number. Subtract the amount you’ll receive in credits or that you will have paid through withholding, and then divide by four. The result is what goes to the IRS on each of the four quarterly due dates.

Don’t forget to include self-employment taxes in your calculations! This is the portion of Social Security and Medicare taxes that an employer pays on the employee’s behalf. If you’re receiving 1099 income, you’re most likely responsible for that amount as well as the employee portion – and that’s in addition to the amount owed for income tax.

Individual taxpayers can use Form 1040-ES to figure what they owe. This form provides detailed instructions for determining the correct amount of estimated tax.

It’s not always easy to figure out how much quarterly estimated tax you owe, but the IRS does offer plentiful options for paying it. Taxpayers can use the Electronic Federal Tax Payment System (EFTPS) to make payments quarterly or on a more frequent basis, if that’s easier. Corporations must submit payment through EFTPS, but individuals have alternatives:

  • Use a credit card, debit card or direct bank transfer online at www.irs.gov/payments, where you can also make payment arrangements if necessary
  • Use the IRS2Go mobile app
  • Send a check or money order through the mail (with a payment voucher from Form 1040-ES)
  • Make payment over the phone or in cash (see Form 1040-ES for details)

You can learn more about quarterly estimated taxes on the IRS website. Better yet, talk to the tax professionals at Halt, Buzas & Powell to understand your responsibilities for these taxes as well as finding strategies to help minimize your overall tax liability. Because when it comes to taxes, what you don’t know definitely can hurt you.

Written by Lana Chebakina, CPA, CVA; Tax Manager