What are Quarterly Estimated Taxes?

Estimated taxes are pre-payments you make towards your annual tax liability. The IRS expects individuals and businesses to pay as they earn income. These payments are typically required if you expect to owe at least $1,000 in taxes after subtracting your withholdings and refundable credits.

How Much Do I have to Pay?

Whether it’s through payroll withholding, quarterly payments, or a combination, the IRS requires taxpayers to pay a certain amount of income tax during the year. The total amount you’re required to pay depends on your adjusted gross income (AGI) for the previous year. For the current year, your “required annual payment” is the smaller of:

90% of the tax that will be shown on your current year return or

100% of the tax shown on your previous return (110% if your AGI exceeded $150,000 in the previous year or $75,000 if you are married filing separately).

WHEN ARE ESTIMATED TAX PAYMENTS DUE?

For calendar-year taxpayers paying their estimated taxes in installments, payments are generally due on:

• First quarterly payment: 15th of April; (covers Jan-Mar)
• Second quarterly payment: 15th of June; (covers Apr-May)
• Third quarterly payment: 15th of September; (covers June-Aug)
• Fourth quarterly payment: 15th of January of the following year; (covers Sep-Dec)

Each of the four installments generally should equal at least 25% of your required annual payment.

If you receive income unevenly (because you have a seasonal business, for example), you may be able to vary your payment amounts and still avoid a penalty by using the “annualized income” method.

MANDATORY ELECTRONIC PAYMENTS

You are required to remit all your payments electronically once you make an estimate or extension payment exceeding $20,000 or you file an original tax return with a total tax liability over $80,000.