Quarterly Taxes - What to Know

The government wants your tax throughout the year; however, these payments aren't required. If you miss one, or never make a payment, the worst thing that will happen is that you may be assessed underpayment penalties and interest. This will kick in on your annual federal income tax return if you owe more than $1,000. For your state return, most states operate similarly and have a $500 threshold before the underpayment penalties and interest start to kick in.

 

 

 

 

Some business owners don't mind paying the large tax due at the end of the year, but most people prefer to spread the burden out over the four quarters.

 

 

Calculating exactly what you owe each quarter can be difficult to do on your own because everyone's tax situation is different. You can estimate these payments a couple of ways and get pretty close. 

There are several ways to estimate your quarterly Federal tax payments. Methods one and two are the easiest while the third takes a little more time to calculate but is more accurate.

 

 

Remember that you will be assessed interest and penalties if you didn't pay 100% (or 110% if you made over $150,000) of your previous year's tax and you owe $1,000 or more on your tax return.  If you overpay, you will receive every dollar overpaid back as your tax refund when you file your annual taxes.  If this stresses you out, and you don't want to DIY this part, contact your accountant, and they should be able to create a tax projection for you to get a more precise estimation on the federal and state level.

 

 

Method 1: Safe Harbor

 

 

• Look at page 2 of your prior year 1040 form for the line that says "Total Tax" (the last line of the "Other Taxes" section of this page).

• If you or your spouse is an employee getting taxes withheld, subtract the total Federal tax amount they will withhold for the year. If you have a paystub, you can multiply the amount withheld on one paystub by the total paychecks you will receive for the year.

• Now divide the number you're left with by four, and that is your Federal tax payment each quarter.

• If your total income for the year is over $150,000, you'll need to multiply your prior year's "Total Tax" by 110% and follow the same process as above.

 

 

( prior year total tax – planned federal tax withholding ) ÷ 4 = amount to pay each quarter

 

 

Method 2: Percentage of Net Income

 

 

• For each quarter's income and expenses, subtract expenses from income to get your net income.

• Multiply your net income by 25-30%.

• Pay this amount as your quarterly estimated payment.

 

 

( income – expenses ) x __% = amount to pay each quarter

 

 

Method 3: Use Worksheet from IRS Pub. 505

 

 

• Follow the instructions on the worksheet 2-1 from the publication, pulling information from the current year and previous year's tax return.

• This method is more time-consuming but will help calculate a more accurate amount to pay.

 

 

How to Pay Federal Estimated Tax

 

 

There are two options for making your payments:

 

 

1. Send in a check or money order with the payment voucher Form 1040-ES.

2. Pay electronically at IRS.gov/payments. Be sure the person shown first on your tax return is the person whose Social Security number you enter when making the payment.

 

 

Quarterly Estimated Taxes Due Dates

 

 

Make sure you put these dates (and reminders) on your calendar if you're planning to pay quarterly estimated taxes:

 

 

• Quarter 1 Due Date: April 15

• Quarter 2 Due Date: June 15

• Quarter 3 Due Date: September 15

• Quarter 4 Due Date: January 15