IRS Estimated Quarterly Tax Payments: Who, What, Why, When and How Much
What Are Estimated Quarterly Taxes?
This is how the IRS collects income tax from individuals and businesses who are not employees of another company. You will make payments using Form 1040ES (Estimated Tax for Individuals) or Form 1120-W (Estimated Tax for Corporations).
Why Are Estimated Quarterly Taxes Required?
Employees have their taxes automatically withheld from every paycheck. Businesses, business owners and self-employed individuals are responsible for submitting their own taxes. To make sure it’s done in a timely manner throughout the year, the IRS has set up this quarterly payment system.
Who Has to Make Quarterly Tax Payments
Sole proprietors, self-employed individuals and corporations are required to pay estimated quarterly taxes.
Exception: If you will owe less than $1,000 in taxes for the year, you can pay them as one lump sum on April 15. Also, if it’s your first year of owing more than $1,000, you can pay the entirety on April 15.
How Much Will Each Payment Be?
If your income varies from month to month and year to year, you may be wondering how you will know your tax liability when you don’t even know your income amount yet. That’s why it’s called “estimated” tax. You make an educated guess based on the past year’s taxes.
You have 2 options for calculating the estimate: 100% of the tax you paid last year, or 90% of the current year’s projected liability (whichever is less). The instructions for the filing form will take you through the steps for Social Security and Medicare payments, deductions and credits.
Once you have the amount of your total taxes for the year, divide that number by 4. The result is your estimated quarterly tax payment.
If you can’t afford to make the same size payment every quarter, use Annualized ES Worksheet (Worksheet 2-9) to calculate each payment separately.
When Do You Send Payments?
The 2019 deadline schedule is:
• Q1: Monday, April 15, 2019
• Q2: Monday, June 17, 2019
• Q3: Monday, September 16, 2019
• Q4: Wednesday, January 15, 2020
How Does It Affect Your Income Tax Return?
You still need to file a return in April. The estimated tax payments you made throughout the year are subtracted from the amount of tax calculated on that form. If they were less than what you owe, you will have to send an additional payment to the IRS. If they were more, you’ll get a refund.
We’re sure many of you have noted that you might have TWO payments to make in April: one for quarterly estimated tax and one for your annual tax return. Not fun!
Isn’t There an Easier Way?
The IRS imposes a small penalty for not paying quarterly estimated tax. Depending on the size of their business and how much hassle quarterly payments entail, some companies choose to file just once in April and pay the penalty.
Another option is to retain an accounting service to handle all the calculating for you. Xendoo tax specialists can save you time and headaches, not just on income tax but also on payroll and sales tax reporting. You’re free to concentrate on more profitable activities, such as helping your business thrive and grow.