Making estimated tax payments during the tax year can help you avoid penalties and a huge tax bill when Tax Day rolls around.
If you are self-employed, there is no employer withholding federal taxes from your paycheck so you may need to make estimated tax payments on your own throughout the year. What are estimated tax payments?
- Estimated tax payments are the payments that you are required to pay four times per year instead of in one lump sum. You typically pay these if you are self-employed, either full-time or part-time. It is referred to as an “estimation” because it is estimating how much income you’ll make that year.
How do I know if I need to make estimated tax payments?
- If you intend to file as a self-employed individual, a sole proprietor, a partnership and/or a S corporation shareholder, you’ll need to make estimated payments every quarter, if you will owe $1000 or more.
- Typically, businesses that file as a corporation and who are expected to owe $500 or more in taxes for the year will also make quarterly payments.
- If you’re an employee, you do not have to make estimated tax payments since your employer should be withholding quarterly taxes on your behalf.
When are they due throughout the year?
- For 2020, here are the estimated quarterly tax deadlines.
- From January 1 to March 31: July 15 – due to COVID-19
- From April 1 to May 31: June 15
- From June 1 to August 31: September 15
- From September 1 to December 31: January 15 of the following year
Although it is not ideal to have to pay taxes four times a year, proper preparation and organization can help to ease the pain. Estimated taxes help spread the tax burden over the year instead of having to come up with one large sum at one time.