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How to Calculate and Make Estimated Tax Payments

Business Finance Business Planning Quarterly Tax Payments Self-Employment Tax Planning

Updated for tax year 2022.

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If you’re like most taxpayers, you receive salary and wages from your employer and never have to worry about making estimated tax payments.

Even if you receive additional income, such as interest and dividends, stock gains, or freelance income, the income tax withheld from wages usually covers your total income tax. If you have significant income other than wages, you need to increase the amount withheld from your pay, so your taxes are covered.

When to make estimated tax payments

If you have little or no income tax withheld from wages and earn significant other income, you may need to make quarterly estimated tax payments to the Internal Revenue Service (IRS). Otherwise, you could owe interest and penalties when you file your tax return.

If you have taxable income as a freelancer, small business owner, entrepreneur, or investor, you should calculate your estimated tax and determine if you need to make quarterly payments.

You may also need to make estimated tax payments if you have gambling income, unemployment benefits, or taxable retirement plan withdrawals.

Don’t worry about estimated tax payments if you expect to owe only a small amount of tax. You should only pay quarterly estimated tax payments if you anticipate a tax bill of at least $1,000 when you file.

Safe harbor amount

Even if you owe more than $1,000 when you file, you won’t pay the penalty if your total income tax withholding and timely estimated tax payments equal at least 90 percent of the tax shown on this year’s return or 100 percent of the tax shown on your previous year’s tax return.

This is called the “safe harbor amount.”

The safe harbor provision is beneficial if your income fluctuates significantly, or you won’t know how much profit you’ll make for the year until you complete year-end calculations.

Calculating estimated payment amounts

If you need to make estimated tax payments, use TaxAct® to calculate those amounts. TaxAct can help you estimate your payment based on a worksheet calculation or your tax liability for the previous year.

Note: Farmers and fishermen get special consideration for estimated tax payments. If two-thirds of your gross income is from farming or fishing, you only have to pay 66.6 percent of the current year’s estimated tax liability.

If you have zero tax liability for the previous year and were a U.S. Citizen or resident alien all year, you don’t have to make estimated payments for this year.

However, if you have significant income for this year, you may choose to make quarterly payments anyway, so you’re not faced with a massive bill at tax time.

Filing dates for federal quarterly estimated tax payments

Estimated tax payments are due every quarter. However, the due dates are not perfectly spaced throughout the year.

The quarterly estimated tax payments due dates for 2022 are as follows:

Payment Period Due Date
Jan. 1 – March 31 April 18, 2022
April 1 – May 31 June 15, 2022
June 1 – Aug. 31 Sept. 15, 2022
Sept. 1 – Dec. 31 Jan. 17, 2023

When a due date falls on a weekend or holiday, your quarterly payment is due the following business day.

And here are the quarterly estimated tax payment due dates for 2023:

Payment Period Due Date
Jan. 1 – March 31 April 18, 2023
April 1 – May 31 June 15, 2023
June 1 – Aug. 31 Sept. 15, 2023
Sept. 1 – Dec. 31 Jan. 15, 2024

How to make quarterly estimated tax payments

There are several ways to make estimated tax payments. If you have an overpayment on one year’s tax return, you can use it to get a head start on estimated tax payments for the following year.

It’s as simple as applying all or a portion of your overpayment to the first quarter of your next year’s tax liability instead of receiving it as a refund.

If you figure out your quarterly payments with TaxAct and print the quarterly payment vouchers, just mail the voucher and your check or money order to the IRS by each due date.

Another easy way to make quarterly estimated tax payments is through Electronic Funds Withdraw. With this method, you have quarterly payments deducted from your bank account automatically. You can set this up in TaxAct.

The IRS also accepts credit and debit card payments via phone and on its website at irs.gov. Be aware that you’ll pay an additional convenience fee to your bank to use a debit or credit card.

The easiest way to make quarterly estimated tax payments is through the Electronic Federal Tax Payment System (EFTPS). This is a free online payment system. Be sure to plan to use EFTPS – you can’t set up or use it to pay your tax on the last day.

Don’t forget to make estimated tax payments for your state as well (if necessary).

Strategies for making estimated tax payments easier

The biggest hurdles to making estimated tax payments are:

  • Remembering to make the payments
  • Having the money on hand

Don’t worry, though — there are some easy steps you can take to ensure you don’t miss payments and that you have enough cash to cover your estimated taxes.

1. Set aside money as you earn it

As you receive income throughout the year, try to put aside an amount for taxes. If you create a separate account for taxes, you can move money into it once a week or every month, so you know the money’s there when you need it.

If, for example, you sell a large capital asset for a gain and receive a large chunk of money, plan to put a portion of your gain in your tax reserve account or make an extra payment to the IRS. That way, you’ll know you’ve got your taxes covered.

On the other hand, if you make less money during the year or have more deductions than you expected, you can always decrease the amount you pay each quarter.

2. Set up reminders for payment due dates

One of the easiest things you can do is mark the due dates for estimated tax payments on your calendar. If you keep a mobile calendar, set up reminders for yourself ahead of time.

These are some of the most important dates of the year to remember if you pay quarterly taxes, so you don’t want to miss them!

3. Recalculate what you owe every quarter

At least once a quarter, consider recalculating your estimated taxes for the year. That way, you don’t have big surprises about your tax liability at year-end.

 

This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.

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