If you’re anything like me, you probably didn’t know this was a thing. Generally, we think of taxes as the annoying thing we have to do by April 15th. Or getting back what you’re owed from the government. Quarterly taxes are a bit different. Basically, you (as an individual or business) estimate your tax payments. These payments are based on their expected income and tax liability. Then, as the quarterly part suggests, you make payments based on your estimations four times throughout the year.
For individuals: this typically applies to those who are self-employed or receive income that is not subject to tax withholding. This can include income from freelancing, contracting, or running a business.
For businesses: quarterly taxes are usually required for those that are not structured as a corporation. This includes sole proprietorships, partnerships, and limited liability companies (LLCs).
- Quarterly tax payments are usually due in April, June, September, and January (of the following year). Exact due dates may vary depending on the tax jurisdiction and the specific circumstances of the taxpayer. Always remember to make timely and accurate quarterly tax payments to avoid penalties and interest charges.
- Quarterly taxes are often referred to as “estimated taxes.” This is because taxpayers estimate the amount of tax they will owe for the year. You then make payments based on that estimate.
- Quarterly taxes ensure that taxpayers meet their tax obligations throughout the year. This is opposed to waiting until the end of the year to pay a large lump sum. This can help individuals and businesses avoid penalties for underpayment of taxes.
- How do you calculate your quarterly tax payment? Generally, taxpayers use the previous year’s tax return as a starting point and adjust for any changes in income, deductions, and credits for the current year.
- Quarterly tax payments are typically made using IRS Form 1040-ES (for individuals) or using the Electronic Federal Tax Payment System or EFTPS (for businesses). Payments can be made online, by phone, or by mail.
- If a taxpayer underpays these taxes like any others, they’ll be hit with penalties and interest charges. The IRS provides a payment calculator to avoid underpayments.
Two important things to note:
- It’s important to note that quarterly tax payments are different from payroll taxes. Payroll taxes are taxes employers withhold from employees’ wages and pay to the government. Because of the tax differences between the two, self-employed people have an extra step to cover. Self-employed individuals must pay income and self-employment taxes, which cover Social Security and Medicare contributions.
- Also note that yes, in the United States, quarterly taxes are a requirement for certain taxpayers. If you expect to owe at least $1,000 in federal income tax for the year, and your tax withholding and credits will not cover this amount, you are generally required to make these payments.
The requirement to make quarterly estimated tax payments applies to a variety of taxpayers. This includes self-employed individuals, sole proprietors, partners in a partnership, LLC members, and S corporation shareholders.
In addition to federal taxes, some states also require quarterly estimated tax payments. The specific requirements vary by state, so it’s important to check the rules in the state you live in or do business in.
Failing to make required payments can result in penalties and interest charges from the IRS and/or state tax authorities. It’s crucial to stay on top of your tax obligations and make timely and accurate payments to avoid these penalties.
Overall, quarterly taxes can be complex and confusing. Add being self-employed or having irregular income to the mix and it can become a nightmare. Consult a tax professional or utilize tax software to lighten your load. Accuracy is key with taxes so use any support you can.