What are estimated tax payments?
Estimated tax payments are payments made throughout the year to the Internal Revenue Service (IRS) by individuals who do not have withholding taxes deducted from their income.Employees have taxes withheld from their paychecksby their employer which is then submitted to the IRS. Business owners must estimate their tax payments and make the payment to the IRS.
How to determine what you owe
To figure out how much you’ll need to pay, you can estimate the amount you will owe for the year, then break that total payment into four payments made quarterly. This method is commonly used for those whose income is steady throughout the year.
You can also estimate your tax liability for the year based on what you’ve earned. This method is good for those whose income fluctuates. This method calculates your taxes on an annual basis at the end of each quarter using a reasonable estimate of your income and deductions.
The IRS has a worksheet to help you determine how much you should pay.
Another way to determine what you owe is to take advantage of the tools and professionals who specialize in taxes. You can utilize tax preparation software or an accountant to guide you in this process.
How to pay estimated tax payments
It is common to pay estimated taxes in four quarterly payments throughout the year. One of the best ways to stay on top of your estimated tax payments is to pay the tax as you receive income. The choice of which method works best for you is one that will requirea review of your income and how it flows.
Below are tools you can use to make your estimated tax payment:
- Payment by debit or credit card
- Wire transfer from your bank
- Payment from your checking or savings account
- Online
- By mail with IRS Form 1040-ES
- IRS2Go app via your mobile device
For further details on payment methods, visit Payments | Internal Revenue Service (irs.gov)
Source:
Barbara Whelehan 2021, Bankrate, Estimated tax payments, <https://www.bankrate.com/taxes/estimated-taxes/>
