.jpeg)
Generally, if you are an employee, your employer will be taking income taxes out of your paycheck. But for many of us who get money from someone who is not our employer, for example if you are self-employed working as a gig worker, freelancer, or making money outside of wages, you may need to pay estimated quarterly tax payments to the IRS.
What are Estimated Payments
Estimated tax payments are the way that the IRS collects taxes on income that is not subject to federal tax withholding (capital gains, self-employment income, prizes, etc.) or if your tax withholdings from your job do not cover your taxes (such as if you work multiple jobs or owe extra taxes from the Premium Tax Credit).
Who needs to make estimated tax payments
Even if you are self-employed, you may not need to make estimated tax payments. You need to make estimated tax payments if you expect to owe taxes of more than $1,000 when your return is filed or if your withholding AND refundable credits are expected to be less than 100% of the tax shown on your prior year tax return (so for the coming year you would look at your 2022 tax return)
How much do I need to pay
This may seem really complicated because of where your income comes from or because of worries about getting the amount wrong. However, there are tools available to help you figure out how much to pay. One that we like using is a free calculator from the website Get It Back Campaign. Depending on how complicated your financial situation is, you can either use the simplified calculator or the more advanced one to make sure that you are paying enough in estimated tax.
How do I make a payment?
The IRS at least makes making estimated tax payments relatively easy. You can either make payments by mail, online on the IRS.gov website, or use the IRS’ IRS2Go mobile app.
If you are making your estimated payments by mail, you will need to also fill out a simple Form 1040-ES. This form tells the IRS who you are (so they can apply the payment correctly), who your spouse is if you are married, and how much you are paying in estimated taxes.
IRS.gov
If you choose to make your estimated tax payments online you can either make a payment after you verify your identity or you can create an account if you feel like you will need to make estimated payments regularly. Payments can be made by direct debit from your bank with no fee or by card/digital wallet which has processing fees.
When is it due
Estimated tax payments are due quarterly with the first payment due on April 15. The next three payments are June 15, September 15, and January 15 of the following year. If the due dates land on a Saturday, Sunday, or a legal holiday, the due date is pushed back to the next day that isn’t a Saturday, Sunday, or legal holiday.
Estimated tax payments can seem stressful but by taking the time to send your payments in you will help make sure you do not have a large amount due when you file your tax return.
