BizBoost News
Volume 10, Issue 16
For distribution 1/25/21; publication 1/27/21

How to Make Estimated Tax Payments

If you are paid a salary and receive a W-2 from your employer, part of your paycheck goes to Uncle Sam as federal withholding. These are payments toward your taxes. If you earn additional income beyond your salaried income, if you are under-withheld, or if you have your own business, you may need to make estimated tax payments through the tax year.  These estimated tax payments can be made on a quarterly basis.

The general rule is that as you earn income, you should also be paying a portion in taxes. If you don’t pay in enough, you may be subject to penalties.  To avoid penalties, the amount you pay as a minimum should be the lesser of 100% (or 110% depending on your income level) of your prior year tax or 90% of your current year tax during the year.

Whether the payments are made via withholdings or estimated tax payments, the IRS expects those payments to be made evenly and consistently throughout the year. If you don’t make any payments at all throughout the year and then pay a large amount late in December, you might get an estimated tax penalty because you didn’t remit payments as you earned the income.

Exceptions are allowed if your earnings substantially fluctuate throughout the year, quarter-by-quarter. You can complete Form 2210 to help minimize any penalty if you have fluctuating income and tax payments.  

Generally, estimated tax payments become applicable when you have either Schedule C or flow-through business income or significant investment income (interest, dividends, and capital gains), because there is usually no withholding on that type of income.

To make a payment or get directions on how to make a payment, go to https://www.irs.gov/payments. Payments can be made by check (include estimated tax vouchers provided by IRS when you send them - 1040-ES forms) or online using a credit card or bank draft.

The due dates for remitting these payments are generally on the 15th of April, June, September, and January, unless one of those days is on a holiday or weekend (in which case payment would be due on the next business day). For 2021 estimated tax payments, these dates are as follows:

April 15th, 2021 (1st quarter payment)
June 15th, 2021 (2nd quarter payment)
September 15th, 2021 (3rd quarter payment)
January 18th, 2022 (4th quarter payment)

If you have big payments due or big refunds due in April each year, then you are either paying too little or too much. Doing a good job at estimating your taxes will smooth out your payments throughout the year. If you’d like to get a projection for Tax Year 2021, feel free to reach out any time.

***

Tweets

Insert a link to your newsletter, web site or blog before you post these:

Our latest blog article: “How to Make Estimated Tax Payments” is available now! Subscribe here: [link]

Taxes must be paid throughout the year as you earn income, and in some cases, if you do not have sufficient (or any) tax withholdings from some/all of your income, you must make estimated tax payments in order to minimize or avoid estimated tax penalties. Learn more in our latest blog article: [link]  

Business Tip: Generally, estimated tax payments become applicable when you have either Schedule C or flow-through business income or significant investment income (interest, dividends, and capital gains), because there is usually no withholding on that type of income. Learn all about how to make estimated tax payments here: [link]

Learn all about how to make estimated tax payments in our latest blog article, and be sure to review your expected income/situation for 2021 with us to determine whether estimated tax payments will be necessary: [link]

 DID YOU KNOW…The general rule for estimated tax payments is that you will want to have paid in the lesser of 100% (or 110% depending on your income level) of your prior year tax or 90% of your current year tax during the year. Learn more in our latest blog article: [link]

The due dates for remitting estimated tax payments are generally on the 15th of April, June, September, and January, unless one of those days is on a holiday or weekend (in which case payment would be due on the next business day). Find out more here! [link]

Remember, the IRS expects estimated tax payments to be made evenly/consistently throughout the year. Therefore, if you don’t make any payments at all throughout the year and then pay a large amount late in December, you are very unlikely to avoid an estimated tax penalty because you didn’t remit payments as you earned the income. Sign up for our newsletter to learn more: [link]

Do you know how to make estimated tax payments throughout the year in order to avoid penalties? Learn all about estimated tax payments in our latest blog article here: [link]