The only time most people have to send a payment to the IRS (if at all) is if they owe tax when they file their federal income tax return each year. But if you don’t have taxes withheld from your paycheck or other taxable income, you probably need to make estimated tax payments periodically during the year.
That’s because the U.S. tax system operates on a “pay as you go” basis. In other words, Uncle Sam wants to be paid when you get paid. So, if the government isn’t getting its cut from income tax withholding, then it expects to be paid through “quarterly” estimated tax payments. They’re not exactly quarterly, but most people refer to them as quarterly tax payments anyway.)
If you don’t pay estimated taxes on time, you could be hit with IRS penalties and interest. So, it’s important to know when estimated tax payments are due. You can also be penalized for not paying enough federal taxes during the year.
Naturally, you want to avoid those penalties. The key is knowing the estimated tax due dates, who must pay estimated taxes, and how to make estimated tax payments. Once you have this information, satisfying any estimated tax requirements is a cinch.
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Who Should Make Quarterly Estimated Tax Payments?
There are a number of scenarios under which you might have to pay estimated taxes. One of the most common reasons why you might have to pay estimated tax is if you receive taxable income that typically isn’t subject to federal income tax withholding. Dividends, interest, capital gains, rental income, and royalties are examples of taxable income that fall into this category.
However, an estimated tax requirement can still be triggered if you receive income that’s frequently subject to withholding (e.g., unemployment compensation, taxable Social Security benefits, or retirement plan distributions). For example, you might not have enough tax withheld to satisfy the pay-as-you-go requirements. Or you can choose not to have taxes withheld, even though withholding is an option. In these cases, you might need to make estimated tax payments to avoid penalties and interest.
In addition, self-employed people usually need to make estimated tax payments, since there’s typically no withholding from self-employment income. Partners in a partnership, S corporation shareholders, sole proprietors, and other small business owners often must pay estimated taxes on business income that passes through to them, too.
Who’s Not Required to Pay Estimated Taxes?
There are exceptions to the general rules for who should pay estimated taxes. For example, you don’t need to make estimated tax payments if you don’t reasonably expect to owe at least $1,000 in federal income tax for the year, after subtracting your withholding and refundable tax credits on your tax return.
You can also skip estimated taxes if you expect your withholding and tax credits for the year to be at least one of the following:
— 90% of your tax liability for the current year
— 100% of your tax liability for the previous year if your adjusted gross income for the previous year was $150,000 or less ($75,000 or less if you’re married but filing a separate return for the current tax year)
— 110% of your tax liability for the previous year if your adjusted gross income for the previous year was over $150,000 (over $75,000 if you’re married but filing a separate return for the current tax year)
If at least two-thirds of your gross income for the current or prior year is from farming or fishing, the 90% tax liability threshold is cut to 66.667% and the 110% threshold for higher-income taxpayers doesn’t apply.
You also don’t have to pay estimated tax if all three of the following are true:
— You had no tax liability for the previous year (i.e., your total tax was zero or you didn’t have to file an income tax return).
— You were a U.S. citizen or resident alien for the whole year.
— The previous tax year covered a 12-month period.
When Are Estimated Tax Payments Due?
Estimated taxes for the year are typically paid in four equal installments. As mentioned earlier, even though they’re commonly called “quarterly” tax payments, estimated tax payments aren’t really made on a strict quarterly basis.
There are set dates for each installment, and those dates are generally the same from year to year. However, if the standard due date falls on a weekend or legal holiday, then it’s pushed back to the next business day. The IRS also gives victims of certain natural disasters and terrorist attacks more time to pay estimated taxes.
Each payment also covers income from a specified time period. As a result, you don’t have to make estimated tax payments until you actually have taxable income requiring an estimated tax payment. So, for example, if you don’t have any taxable income upon which there’s no withholding until August, you don’t have to pay estimated tax until the third payment for the year is due.
2024 Estimated Tax Due Dates
For people making estimated tax payments for 2024 (visit our site and bookmark this page to remember when to pay), the year is divided into four “payment periods.” Each payment period has its own estimated tax payment due date. When you first receive income in 2024 for which you need to pay estimated tax, you must make your first estimated payment by the due date for the corresponding payment period, as shown in the above table.
WealthUp Tip: You don’t have to make the fourth installment payment for 2024 if you file your 2024 tax return by Jan. 31, 2025, and pay the entire tax due with your return.
You can either pay all your estimated tax at once by your first due date or pay your estimated tax for the year in installments. If you pay in installments, which most people do, make your first payment by the due date for the first payment period, then make any remaining installment payments by the due dates for the later payment periods.
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Estimated Tax Payments Examples
Suzanne receives $1,000 of rental income every month from real estate she owns. She received her first rent payment for the year on Jan. 3, 2024. Her first estimated tax payment for the year is due on April 15, 2024. If she decides to make “quarterly” tax payments instead of paying all her estimated tax by April 15, she must also make payments on June 17, 2024, Sept. 16, 2024, and Jan. 15, 2025, for a total of four equal installments.
Kay plans to withdraw money from a retirement account for the first time on April 1, 2024. Taxes won’t be withheld from the withdrawal. Kay’s first estimated tax payment for the year will be due on June 17, 2024. If she decides to make “quarterly” tax payments instead of paying all her estimated tax by June 17, she must also make payments on Sept. 16, 2024, and Jan. 15, 2025, for a total of three installment payments.
Due Dates for Farmers and Fishermen
A couple of special rules apply if at least two-thirds of your gross income for 2023 or 2024 is from farming or fishing.
1. First, you can wait until Jan. 15, 2025, to pay all of your estimated tax for the year. You won’t have to make any other payments for 2024.
2. Second, you aren’t required to make any estimated tax payments at all If you file your 2024 income tax return by March 3, 2025, and pay any tax at that time.
Extensions for Natural Disaster Victims
As part of an overall tax relief package, victims of certain natural disasters are usually given more time to file various federal tax returns. The extended tax deadlines only apply to people who live or have a business in a location declared a federal disaster area by the Federal Emergency Management Agency (FEMA).
The new tax deadlines typically apply to all original filing due dates and related tax payments within a designated time period following the disaster—including estimated tax payments. As a result, the first estimated tax payment deadline for the 2024 tax year (April 15, 2024) has been pushed back to June 17, 2024, for victims of the severe storms and tornadoes in Tennessee that began on Dec. 9, 2023.
Expect the list of estimated tax payments for the 2024 tax year that are delayed because of a natural disaster to grow as new natural disasters hit during the year.
Extensions for People Impacted by Terrorist Attacks in Israel
Tax relief in the form of extended estimated tax payment deadlines is also available to taxpayers impacted by the terrorist attacks in Israel that began on Oct. 7, 2023. As a result, qualified taxpayers will have until Oct. 7, 2024, to make the first three estimated tax payments for the 2024 tax year (April 15, 2024; June 17, 2024; and Sept. 16, 2024).
This tax relief is available to the following people:
— Any person whose principal residence is located in Israel, the West Bank or Gaza (covered area)
— Any person affiliated with a recognized government or philanthropic organization and who is assisting in the covered area (e.g., as a relief worker)
— Any person whose tax return preparer or records necessary to meet a tax deadline are located in the covered area
— Any person visiting the covered area who was killed, injured, or taken hostage during the terrorist attacks
— Any spouse of an affected person, but only with regard to a joint return of married couple
The IRS will use previously filed tax returns to identify people whose principal residence is in the covered area. The tax relief will automatically be available to these taxpayers. Other people should call the IRS disaster hotline at 866-562-5227 to request relief (international callers can dial 267-941-1000).
How to Pay Estimated Taxes
Once you know estimated taxes are required and when they’re due, you need to figure out how much estimated tax you owe and how to send your tax payments to the IRS. You’ll need Form 1040-ES and the accompanying instructions to calculate your payments, and you might need the form to send a payment to the IRS, too.
Calculating Your Estimated Tax Payments
Let’s start with the calculation of each estimated tax payment for the 2024 tax year. First, you must determine the total estimated tax you must pay for the year using the Estimated Tax Worksheet in the instructions for Form 1040-ES. This amount is based on your expected adjusted gross income, taxable income, taxes, deductions, and tax credits for the year.
WealthUp Tip: Since you’re estimating the year’s tax outcome, it might help to use amounts for the 2023 tax year as a starting point. However, you must tweak these figures to account for recent tax law changes and changes to your own situation (e.g., more or less income, marriage or divorce, having a baby, etc.).
If the income for which estimated taxes are required doesn’t fluctuate very much, multiply the total estimated tax for the year by the percentage shown in the table above to calculate the amount of each individual payment for the 2024 tax year.
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Annualized Income Installment Method
If your income goes up and down during the year (e.g., you have seasonal income from a side job), you can use the annualized income installment method to calculate the amount of each payment. With this method, your tax is analyzed at the end of each payment period based on a reasonable estimate of your income, deductions, and other items from the beginning of the year through the end of the period. This could allow you to lower or eliminate estimated tax payments for one or more payment periods.
Use the Annualized Estimated Tax Worksheet in IRS Publication 505 to see if you can pay less for any period with this method. You must also file Form 2210 (including Schedule AI) with your tax return for the year if you use the annualized method to calculate your estimated tax payments.
Making Estimated Tax Payments to the IRS
There are a number of ways to make an estimated tax payment. For instance, you can:
— Apply all or part of a tax refund for the previous tax year to your estimated tax for the current year (must be done when the previous year’s tax return is filed)
— Authorize a direct transfer from your bank account
— Pay with a debit or credit card online or over the phone (fees apply)
— Mail a paper check or money order to the IRS with Form 1040-ES
Details of the various tax payment methods are available on the IRS website.
Penalties for Not Making Estimated Payments (Or Not Paying Enough)
Watch out if you don’t pay enough tax during the year, either through withholding or by making estimated payments. The IRS can hit you with a stiff underpayment penalty. Interest on the underpayment might apply, too. You can even owe a penalty and interest if you end up with a refund when you file your tax return for the year.
The penalty is imposed separately for each payment period and grows larger each day the estimated tax remains unpaid. You can be hit with the penalty if you didn’t pay enough estimated tax for the year as a whole, an installment payment was late, or a particular payment was not enough.
Calculating the penalty amount can be tricky. That’s why the IRS will calculate it for you and send you a bill (unless you used the annualized income installment method to calculate your payments). If that’s what you want to do, simply leave the estimated tax penalty line on your federal tax return blank. The IRS won’t charge interest on the penalty if you pay it by the date listed on the bill.
Waiver of Estimated Tax Penalty
There’s some good news regarding penalties, though. All or part of a penalty for underpayment of estimated tax can be waived if either:
— During the tax year in question or previous year, you retired after reaching age 62 or became disabled, and your underpayment was due to reasonable cause and not willful neglect
— The underpayment was due to a casualty, disaster, or other unusual circumstance, and it would be inequitable to impose the penalty.
Use Form 2210 or Form 2210-F to request a waiver. Just know that there’s no guarantee that your penalty will be waived—it’s up to the IRS.
State Estimated Tax Payments
You must pay federal taxes as described above, but do you have to pay quarterly estimated taxes to your state as well? Maybe.
If you live in a state without a broad-based income tax—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming—you don’t need to worry about making estimated tax payments to your state.
However, if your state imposes a general income tax, then chances are you must “pay as you go” through state withholding or estimated payments, too. The estimated tax payment requirements for your state will likely be different than the federal rules, so check with the state tax agency where you live for guidance.
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What Tax Bracket Are You In?
Perhaps the best way to lower your federal income tax bill is push yourself down into a lower tax bracket to reduce your tax rate. On the flip side, you certainly want to avoid getting kicked into a higher bracket and increasing your tax rate.
But, of course, under either scenario you need to have a good feel for where you are right now. For that purpose, check out the federal tax brackets and rates that will apply for your next federal tax return.
What’s Your Standard Deduction?
For most people, their largest and most important tax deduction is the standard deduction. However, the standard deduction amounts change every year to account for inflation. Plus, the standard deduction isn’t the same for everyone.
So, before start your tax return or jumping into tax planning mode, you’ll need to know how much your standard will be for the tax year.
Capital Gains Tax: What You Need to Know
Millions of Americans sell stocks, bonds, cryptocurrency, real estate, precious metals, and other types of investment property every year. However, if you sell investments during the year, you might owe capital gains tax on any profits.
The good news is that you’ll pay a lower tax rate on capital gains when compared to income taxes on wages, tips, and other “ordinary” income. On the other hand, there are a few landmines to avoid when you sell investment property. Get all the details with our guide to the capital gains tax.