Next quarterly estimated tax payments due September 15
With the next quarterly estimated tax payment due in September, some taxpayers need to figure out how much they owe. But, how do they know if they owe and what are their options?
“When it comes to paying quarterly estimated taxes, the circumstances surrounding who needs to pay them and how much they need to pay depends on a variety of factors,” said Alison Flores, principal tax research analyst at The Tax Institute at H&R Block. “Things to take into consideration are sources of income, withholding amounts on non-wage income, and whether self-employment taxes need to be paid.”
With this in mind, here’s a who-what-how-when list to explain the process for paying quarterly estimated taxes.
Who should pay
One of the first things people learn with their first job is that what they are told they will earn is not what is on their paycheck. The gross amount earned is reduced to the net income due largely to the amount of taxes withheld.
But, for people who work as self-employed consultants or are part of the gig economy, they might be getting the gross amount in their checks, which could result in some extra bookkeeping on their part – and make paying quarterly estimated payments necessary to avoid paying penalties at tax time.
What is being taxed
Generally, these tax payments are due on income received when income taxes have not been withheld. This includes not only self-employment income, but also, unemployment compensation, interest, dividends, alimony, rent, capital gains, prizes and awards.
How penalties can be avoided
By making payments that come within $1,000 of the tax liability, penalties for not paying estimated tax, or enough estimated tax can be avoided. If the tax owed exceeds $1,000 when tax returns are due, the taxpayer may be penalized. Taxpayers can be exempt from this penalty if withholding and timely quarterly payments total one of these:
- 100 percent (110 percent for higher-income taxpayers) of the amount calculated for last year’s return
- 90 percent of the balance due for the current year.
“Unless the withholding amount for other income earned by the taxpayer or their spouse is increased to cover tax liability, taxpayers who receive pay not subject to withholding should make quarterly estimated tax payments,” Flores said.
When to pay and how
Even for taxpayers whose income isn’t subject to income tax withholding by the entity making the payment, there is a pay-as-you-go system in place. For calendar-year taxpayers, payments are due mid-month in April, June, September and the next January. The next deadline is Sept. 15.
Estimated payments can be made using one of these methods:
- Pay online at www.irs.gov/payments or use the Electronic Federal Tax Payment System
- Pay over the phone with a debit or credit card using a payment processor
- Pay through mobile device on the IRS2Go app
- Pay cash at an Official Payments retail partner
- Mail a check or money order with an estimated tax payment voucher
- Apply the prior year’s tax refund to estimated taxes for the current year
Also, single taxpayers who have wage income can increase the withholding on that income instead of making estimated payments. Married taxpayers filing jointly could have another option if one spouse has an employer; they could choose to cover their additional taxes owed by adjusting the withholdings on that spouse’s paycheck.
The W-4, filed with an employer, determines how much income tax is withheld from every paycheck. Depending on the number of allowances a taxpayer selects, their marital status and any additional withholding requested, more tax will be withheld from each paycheck.
To learn more about quarterly estimated tax payments, talk to a trusted tax professional.
By Teresa L. Clark
Teresa L. Clark came to H&R Block in January 2010 after working as a civil servant for more than 13 years. Since that first tax season she has written blog posts and talking points, edited content of all shapes and sizes, facilitated media interviews for the experts in The Tax Institute at H&R Block and supported the DIY team. Clark has a master's degree in integrated marketing communications from the University of Kansas and is a member of the Honor Society of Phi Kappa Phi.