Quarterly Estimated Tax Payments: What You Should Know

Author : Camputaro & Associates
Jul 08, 2019

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The majority of Americans have taxes withheld from each paycheck they receive. Then, at the beginning of the next year, they file a tax return and either receive a refund for overpaid taxes, or submit an additional payment for underpaid taxes. However, this isn’t the process for every taxpayer in the country. Certain individuals are required to make quarterly estimated tax payments, and you may be surprised by exactly who is required to this. Here’s what you need to know about quarterly estimated taxes.

What Is It?

Estimated quarterly taxes are a method used to pay tax on any income that is not subject to withholding tax. This would apply to things like self-employment income, earnings from a business you own or have invested in, interest on investments, rental income, dividends, and other sources of income. Generally, taxes on these types of income are pair each quarter, in four equal installments. (However, the installments don’t have to be equal, if your untaxed income fluctuates throughout the year.)

Who Pays It?

Most people think that estimated tax payments are solely for self-employed individuals, like freelancers and business owners. However, as you may have noticed in the above section, it can apply to a lot more people than that. Self-employed individuals and sole-proprietor business owners will almost always pay estimated quarterly taxes, of course. But in addition to these individuals, anyone who is a partner in a business or certain corporations will likely have to pay quarterly taxes upon occasion; typically, this only occurs if they expect to have $500 or more in tax liability for the year.

Even those who work regular W2 jobs may be required to submit quarterly payments if they have a significant amount of rental income, or interest and dividends form investments. Additionally, if a person owed money to the IRS on the previous year’s tax returns, they are expected to make quarterly estimated tax payments for the next year. However, an alternative to this is usually to just adjust your withholdings to have more taken out of each paycheck.

How to Calculate It

Now that you understand what quarterly estimated tax payments are and who is typically expected to pay them, you should have a pretty good idea of whether or not they’re something you need to worry about. If you are one of those individuals expected to make these quarterly payments, here’s how to calculate it.

Luckily, the process is made rather simply by the IRS’s Form 1040-ES makes this relatively simple. It includes detailed instructions and information relevant to these calculations. You’ll need to know your average annual income, deductions, credits, and how much you’ve already paid in taxes; last year’s tax return can act as a useful guide for these numbers, but if your income has changed significantly, you’ll need to account for those changes.

Once you have this information, just plug the numbers into the IRS form to calculate your total tax liability for the year. Then, divide by four to determine how much you should be paying each quarter.

How and When to Pay

If you wish to, you can pay all of your estimated tax on April 15th. Obviously, this would be a large sum, so if you can’t do this, you can pay in four installments. Here is a list of the payment due dates for each quarter:

  • 1st quarter: April 15th
  • 2nd quarter: June 17th
  • 3rd quarter: September 16th
  • 4th quarter: January 15th (2020)

Be sure that you make these payments on time and in full to avoid fines and penalties. When you file your tax return in 2020, you will then pay any additional taxes you owe, or receive a refund if you overpaid in your quarterly estimated payments.

These payments can be made by cash, credit card, debit card, money order, or direct transfer. Cash must be paid in person, while checks and money orders can be mailed. Credit, debit, and direct transfer payments can be made over the phone or online.

If you’re not sure whether or not you should be making quarterly estimated tax payments, need help calculating what you should be paying, or have any other questions about your taxes, Camputaro & Associates. We are some of the most experienced CPAs around, and have helped business owners, landlords, and many other individuals handle their estimated quarterly tax payments with ease and simplicity. Call now to make an appointment with one of our knowledgeable and experienced tax professionals.

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Camputaro and Associates
Certified Public Accounting Firm
136 N. Orchard Street, Suite 8
Ormond Beach, FL 32174
(386) 255-2511