If you have a salaried job, your employer will likely withhold income tax from each salary. But if you’re among the millions of small business owners, self-employed, temporary job workers, and other self-employed taxpayers, there is no automatic mechanism to withhold your taxes.
Alternatively, you can pay estimated taxes throughout the year to avoid tax penalties when you file your tax return.
The estimated tax filing process is a bit complicated, but we’ve included detailed information below to help guide you through it. For more, here, how And for the year 2022.
What are the estimated taxes?
If you earn or receive income that is not subject to federal withholding taxes throughout the year — earnings or income from the bustle of rental property, for example — you will pay as assessed taxes. Estimated tax is a quarterly payment based on your income for the period. Essentially, assessed tax allows you to prepay a portion of your income tax every few months to avoid paying a lump sum on tax day.
Who has to pay the assessed taxes?
If you filled out an IRS Form W-4, which provides directions to your employer about how much to withhold from each paycheck, you may not need to pay estimated taxes. If you are not a W-4 employee, you will probably need to keep estimated tax payments on your radar. According to the IRS, you must pay discretionary taxes if you expect to earn at least $1,000 in 2021, and your type of business falls into one of these categories:
- Independent contractor or piecework
- sole owner
- Shareholder in S Corporation.
There are other sources of income that fall under the umbrella of assessed tax, including:
- Dividends and interest earned on investment sales
- Royalties on previous works
- Owner’s rental income
- unemployment benefits
- retirement benefits
- Social Security benefits, if you have other sources of income
- Prizes and Awards
You may also need to pay assessed tax as a full-time employee if your employer does not withhold enough from your paycheck. To update your W-4 with the correct withholding amount, use the IRS Tax WIth Holding Estimator tool, complete the new Form W-4, Certificate of Employee Withholding Allowance Form and submit it to your employer.
Estimated taxes are due, regardless of whether you pay by direct deposit, check, or digital payment services such as PayPal, CashApp, Zelle, or Venmo. Note: while you Must Already paying taxes on that income, a new rule under the US bailout requires third-party payment networks to report $600 or more in payments to the IRS.
When are taxes due?
Assessed taxes are paid quarterly, usually on the fifteenth day of April, June, September and January of the following year. One notable exception is when the 15th falls on a statutory holiday or weekend. In these cases, you must file your return by the next business day.
The estimated tax deadlines for 2021 are listed below.
|January 1 – March 31||April 15, 2021|
|April 1 – May 31||June 15, 2021|
|June 1 – August 31||September 15, 2021|
|September 1 – December 31||January 18 (January 15, 2022) was Saturday, and Monday January 17 is Martin Luther King Jr. Day.|
The estimated tax deadlines for 2022 are shown in the table below.
Estimated tax deadlines
|earning period||taxes due|
September 1 – December 31, 2021
January 18 2022
Jan 1 – Mar 31 2022
April 18 2022
April 1 – May 31 2022
June 15 2022
Jun 1 – Aug 31 2022
September 15, 2022
Sep 1 – Dec 31 2022
January 16, 2023
How do I calculate estimated tax payments?
There are several ways to calculate quarterly tax payments depending on your business model and annual earnings.
- If you earn a steady income, estimate the tax you will owe for the year and send a quarter of it to the IRS each quarter. For example, let’s say you earn $80,000, which puts you in a marginal tax bracket of 22%. You will owe $17,600 in federal taxes or $4,400 each quarter in 2022.
- If your income varies throughout the year, you can estimate your tax burden based on your income and deductions in the previous quarter. The IRS Estimated Tax Worksheet can help you make the calculations.
If you overestimate your year-end earnings, you can complete a Form 1040-ES for a refund or apply the overpayment to future quarterly taxes. If your salary is too low, the form can help you calculate how much you still owe.
How do I pay assessed taxes?
When filing your estimated taxes, use the 1040-ES IRS tax form or Form 1120-W if you are registering as a corporation. You can fill out the form manually with the help of the included worksheets, or you can rely on your favorite tax software or tax advisor to walk you through the process and get the job done. From there, you can pay your federal taxes by mail or online through the IRS website. You’ll also find a full list of accepted payment methods and options, including installment plans.
Do I also have to pay estimated state taxes?
It depends. If you live in one of the few US states without income tax, your liability ends with the estimated federal taxes we discussed. However, if your state taxes income, you will make estimated tax payments using the same federal tax deadlines. Visit your state’s Department of Revenue website or consult your tax advisor or tax program service for more personalized information.
What are the penalties if I do not pay the assessed taxes?
It’s a good idea to post a calendar reminder as the quarterly deadline approaches to avoid a late fine. You may be fined if:
- You forgot to pay estimated taxes or your payment is less than 90% of your tax due
- In some cases, you appendix
If you’d like to delve further into the estimated tax penalties and waiver conditions, see the instructions on IRS Form 2210.
Can I avoid paying assessed taxes?
Perhaps not without incurring those penalties. Some categories of workers – particularly those whoExceptionally modest, inconsistent, or seasonal – exempt from having to make quarterly payments to Uncle Sam, however:
- If your net income is $400 or less for a quarter, you don’t have to pay estimated taxes — but you still have to file a tax return even if there are no taxes due.
- If you were a US citizen or resident alien throughout 2020, your tax total was zero And You do not have to file an income tax return
- If you are a farmer or fisherman and at least two-thirds of your gross income is from farming or fishing, the first three pay periods do not apply to you. The only payment due date for estimated taxes for 2021 is January 18, 2022.
- If your income fluctuates significantly throughout the year (if you run a seasonal business, for example), you may be able to lower or eliminate your estimated tax payments using the annuity method. See IRS Worksheet 2-7 to see if you qualify.