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A Comprehensive Guide To Estimated Tax Payments
A Comprehensive Guide To Estimated Tax Payments
If you struggled with your estimated tax payments in 2023, this guide is for you. We’ll break down everything you need to know about IRS estimated tax payments, the quarterly tax dates for 2024, how to pay estimated taxes online and how to file quarterly taxes.
Table of contents
Are estimated tax payments the same as quarterly tax payments?...Read more
What are quarterly taxes?...Read more
Who has to make quarterly tax payments?...Read more
Do estimated tax payments include state taxes?...Read more
How to calculate quarterly tax payments...Read more
How to pay quarterly taxes...Read more
What happens if you miss estimated tax payments?...Read more
How to file quarterly taxes...Read more
Are estimated tax payments the same as quarterly tax payments?
Before we get into the finer details, we have to clear up a common question among new freelancers, “Is paying estimated taxes and quarterly taxes the same thing?”
Quarterly taxes, also called estimated taxes, estimated quarterly taxes or estimated tax payments, all mean the same thing— paying taxes as you go when you're self-employed. We’ll be using both “estimated tax payments” and quarterly tax payments” interchangeably throughout this guide.
What are quarterly taxes?
Small business owners, independent contractors and gig workers have to manage their own taxes. That means staying on top of your tax obligations by paying the IRS what you expect to owe throughout the year. These payments, known as quarterly tax payments, are calculated based on your business earnings from the previous quarter.
It is essential that every freelancer and small business owner understands the importance of making estimated tax payments to the IRS. Part of this responsibility is knowing when to make these payments throughout the year to avoid getting fined.
When are the quarterly tax payments due in 2024?
Who has to make quarterly tax payments?
For many self-employed individuals, estimated tax payments to the IRS are just part of the deal, especially if your self-employed business is your main source of income. Basically, the IRS wants you to pay taxes on your income as you earn it.
If you end up underpaying during the year, the IRS might slap you with penalties for late payments. Plus, making those federal estimated tax payments helps you avoid getting hit with a huge tax bill in April.
To put it simply, you might need to make quarterly tax payments if:
- You expect to owe $1,000 or more in taxes from your self-employed income
- You earned $400 or more in 1099 income
Do estimated tax payments include state taxes?
Estimated tax payments typically include both federal and state taxes. If you're self-employed, you're generally required to make quarterly tax payments to cover both your federal and state tax liabilities. However, the rules can vary by state, so make sure to check the specific requirements on your state’s website or by contacting a local tax pro.
How to calculate quarterly tax payments
It’s not always necessary for freelancers and self-employed individuals to calculate their estimated taxes manually. Using an estimated tax calculator to find your quarterly tax payments is an efficient way to avoid miscalculations.
However, you’ll need to do a bit of estimating before using any online calculator, so it’s worth knowing how the entire process works. Let’s use a real-life example to better understand this. Say you’re a freelance consultant who needs to make federal estimated tax payments.
You expect to earn $80,000 in self-employment income for the year. You are a single filer and don’t have any other sources of income. To calculate your quarterly taxes, you first estimate your adjusted gross income (AGI).
AGI is calculated by subtracting above-the-line deductions from estimated income. For the year, you expect to deduct $3,000 for health insurance premiums and $4,000 for a traditional IRA contribution.
- AGI is $80,000 - $3,000 - $4,000 = $73,000
- $73,000 - $14,600 = $58,400
- $11,600 * 0.10 = $1,160
- ($58,400 - $11,600) * 0.12 = $46,800 * 0.12 = $5,616
- Total income tax is $1,160 + $5,616 = $6,776
- $80,000 - $5,000 = $75,000
- $75,000 * 0.9235 * 0.153 ≈ $10,597.2
- $6,776 + $10,597.2 ≈ $17,373.2
- Estimated quarterly payment = $17,373.2 / 4 ≈ $4,343.3
What if my self-employed income fluctuates?
How to pay quarterly taxes
The IRS offers many ways to make both annual and quarterly tax payments. If you prefer paying estimated taxes online, IRS Direct Pay is a great option. It lets you make your payment directly from your bank account, without any extra fees.
Another online option is the Electronic Federal Tax Payment System (EFTPS). While it requires you to make an account first, it provides detailed payment tracking, which can help keep accurate records. If you're paying estimated taxes online, it's a good idea to set up your account before your quarterly payments are due as the process may take several days.
The IRS also allows you to pay by wire transfer or credit or debit card, subject to fees. If you're more traditional, you can always mail a check or money order to the United States Treasury. Be sure to include the 1040-ES payment voucher to help the IRS process your payment easily.
What happens if you miss estimated tax payments?
If you messed up some estimated tax payments in 2023, you probably racked up some fines from the IRS. If you miscalculate your estimated tax payments, you’ll be hit with the underpayment penalty.
This penalty generally starts at 0.5% of the unpaid amount and increases every month you don’t pay. It also comes with interest which also adds up every month, so you want to avoid this penalty at all costs.
Most tax experts will tell you to stick to the “safe harbor” rule when paying quarterly taxes online. This just means paying at least 90% of your current year’s taxes or 100% of your previous year’s taxes to avoid underpayment penalties.
How to file quarterly taxes
Form 1040-ES is the most important form for making estimated tax payments to the IRS.
This form is available on the IRS website and comes with a worksheet you can use to figure out your estimated tax liability.
You should save these calculations for filing your annual tax returns and in case of an IRS audit. You only need to file this form’s payment vouchers if you are making quarterly tax payments by mail order or check.
Freelancers and self-employed individuals can use FlyFin’s AI to find business deductions that can lower their estimated taxes. There are also built-in calculators that calculate SE tax, quarterly taxes and any outstanding tax penalties. CPAs offer unlimited tax support including helping you stay on top of the 2024 quarterly tax dates and answering questions about how to file quarterly taxes.
What’s FlyFin?
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