A Look At Estimated Tax Payments

If you’re self-employed or have income that doesn’t come with taxes already deducted, you’ll likely need to make estimated tax payments. This is especially true for freelancers or those receiving 1099 forms. When you’re in this boat, figuring out your estimated tax income can feel overwhelming, but tools like a 1099 tax estimator can really simplify things. It helps you see how much you should be setting aside for taxes, so there are no nasty surprises when you file. And don’t forget those estimated tax payment dates. They generally fall in April, June, September and January. Missing a payment can lead to penalties, which nobody wants. The estimated taxes payment rules state that if you expect to owe $1,000 or more at tax time, you’re on the hook for these payments. You need to pay your taxes throughout the year, either through withholding from your paycheck or by making estimated tax payments. If you don’t pay enough by the time you file your return, you could end up with a penalty for underpayment. To figure out if you need to pay estimated taxes, ask yourself these questions:

• Will you owe less than $1,000 in taxes this year after taking into account what’s already been withheld? If yes, you’re in the clear—you don’t need to worry about estimated payments.
• Do you think your federal income tax withholding will cover at least 90% of what you’ll owe this year? If so, you don’t need to make estimated payments.
• Is your withholding going to be at least 100% of what you owed last year? If your adjusted gross income was over $150,000 (or $75,000 if you’re married and filing separately), then it should be at least 110% of last year’s tax. If that’s the case, you’re good to go without making estimated payments.

If you answered “no” to all these questions, then it’s time to start thinking about estimated taxes.

When it comes to managing your finances, keeping track of estimated tax deadlines is key. These estimated tax due dates are usually set for four times a year—April, June, September and January. It’s essential to mark these dates on your calendar as missing these deadlines can lead to an estimated tax penalty, which is something you definitely want to avoid. To make things easier, you can use an estimated tax calculator. This tool helps you figure out how much you should be paying each quarter based on your income and deductions. Knowing your estimated taxes ahead of time means you can budget better and avoid any surprises when tax season comes around. For 2024, the IRS estimated tax payment dates are April 15, June 17, September 16, and January 15 of the following year. Make sure to send your payments in by these dates to stay on track. If you find yourself falling behind, it’s a good idea to catch up as soon as you can to minimize any penalties.

Form 1040-ES is the main form for anyone who needs to file an estimated tax return, particularly if you're self-employed or receive income without withholding. If you earn money through freelance work, rental properties, or side gigs, this form is essential for making your estimated tax payments for 2024. The form includes helpful worksheets that guide you through calculating your estimated taxes based on your projected income, deductions and credits. You’ll enter your various income sources and use the provided tables to outline your estimated tax payments. One great feature of Form 1040-ES is that it allows you to adjust your payments if you expect your income to change. This means you can make additional estimated tax payments if you anticipate earning more later in the year, keeping your tax obligations in check. The form also comes with four payment vouchers for each estimated tax payment due in April, June, September and January. To make things even simpler, consider using an estimated tax calculator. This tool helps you determine exactly how much to set aside for your estimated taxes each quarter. You don’t have to file Form 1040-ES if you’re e-filing, simply making the payments on time is enough. The form is just for your records, in case the IRS ever wants to see proof of your estimated federal tax calculations.

There’s more than one way to pay estimated taxes, and which method works best for you really depends on how confident you are about your projected annual income and tax bill. One common way is to estimate your taxes based on last year’s figures. Let’s say you were a freelancer in 2023 and ended up owing $10,000. If you expect to earn a similar amount in 2024, you’d take that $10,000 and divide it by four, sending $2,500 to the IRS each quarter. This means you’d make your estimated tax payments on the estimated tax payment dates. This method works well for people whose estimated tax income is relatively steady, like a graphic designer with a consistent stream of clients. On the other hand, if your income varies—like a seasonal landscaper or a ride-share driver—annualizing might be a better fit. Suppose you start the year strong, earning well in spring but then see a dip in income during the winter months. In this case, you’d estimate your tax liability based on your actual earnings at the end of each quarter. If by June you’ve earned $20,000 and anticipate earning less in the next quarter, you’d adjust your estimated tax payments accordingly. The IRS provides worksheets to help you with these calculations, making it easier to manage your estimated tax income based on what you’ve actually earned.

Let’s look at an example of how estimated tax is calculated. Say you’re a freelance web developer and calculate your estimated quarterly tax payments based on how much income tax and self-employment tax you owe. You expect to make $80,000 this year from your freelance projects. You anticipate incurring $10,000 in business deductions.

• $80,000 (estimated income) - $10,000 (above-the-line deductions) = $70,000. This is your AGI.

Next, you subtract the standard deduction for single taxpayers, which is $14,600. You can also deduct 50% of your self-employment tax of $11,304 (calculated below), which gives you a deduction of $5,652. So, your total estimated taxable income is:

• $70,000 - $14,600 - $5,652 = $49,748.

Next, you multiply your adjusted gross income by your income tax rate based on the 2024 tax bracket. Let’s say your effective tax rate is 15%. Your estimated income taxes owed for the year work out to:

• $49,748 x 15% = $7,462.20.

Since you earned more than $400 this year, you will also have to pay self-employment tax. To calculate this, you first multiply estimated total income ($80,000) by 92.35% to find your self-employment taxable income.

• $80,000 x 92.35% = $73,880.

Then, you multiply that by the self-employment tax rate of 15.3%:

• $73,880 x 15.3% = $11,304.

For the final step, you add your estimated income tax and self-employment tax for the year and divide the total by four to find your estimated tax payment for 2024.

• $7,462.20 (estimated income tax owed) + $11,304 (estimated self-employment tax) = $18,766.20
• $18,766.20 / 4 = $4,691.55 (Your estimated tax payment for 2024).

This process can be extremely tedious. If you use an estimated tax calculator (like the one FlyFin has), all you have to do is enter a few details about your income and deductions, and all the work is done for you. If you’re using the Annualized Income Installment Method, the process is more complicated. The AIIM calculates your income by “annualizing” it, which means estimating your yearly income based on your earnings over a specific time period. To use this method, you break the year into four periods. For each period, you’ll determine your adjusted gross income and then multiply that by a set “annualization amount,” which reflects how much of the tax year is left. For instance, in the first period, the annualization amount is “4” since it represents a fourth of the year. Again, using an estimated tax calculator can make it easier to pay estimated taxes accurately and on time.

The safe harbor rules are an important part of managing estimated taxes and can help you avoid penalties for underpayment. These rules provide a cushion, allowing you to pay estimated taxes without the fear of facing penalties at tax time. To qualify for safe harbor, you need to meet specific criteria. One key rule is that you should pay at least 90% of the tax you owe for the current year. This gives you a clear benchmark for your estimated tax payments throughout the year. Alternatively, you can avoid penalties by paying 100% of the tax you owed in the previous year. This is particularly helpful if your income is consistent and you know what you typically owe. For higher earners, specifically those with an adjusted gross income over $150,000, the requirement changes slightly. You’ll need to pay 110% of your previous year’s tax liability to qualify for safe harbor. By following these estimated taxes payment rules, you can feel more secure about your estimated tax payments. If you meet the safe harbor requirements, even if your actual tax liability ends up being higher than what you paid, you won’t face any penalties.

The estimated tax penalty is something many taxpayers want to avoid. This penalty typically applies to individuals who do not pay enough estimated federal tax throughout the year. If you find yourself owing more than $1,000 on your estimated tax return when you file, you could face this penalty. The penalty is calculated based on the amount you underpaid, and it can accumulate quickly if you miss your estimated tax payments. It’s important to remember that the IRS expects you to pay your estimated tax income in quarterly installments. If you don’t meet the payment thresholds, you could incur interest and penalties on the unpaid amounts. To avoid the estimated tax penalty, you can use the safe harbor rule and an estimated tax calculator.

When it comes to making your estimated tax payments, you have several convenient methods to choose from. One of the easiest options is to pay estimated taxes online. The IRS offers a few ways to do this. You can use Direct Pay, which allows you to pay directly from your bank account without any fees. This is a quick and hassle-free way to handle your estimated tax payment. Another great option is the Electronic Federal Tax Payment System (EFTPS). This free service lets you schedule your estimated tax payments in advance, ensuring everything is taken care of on time. If you prefer to use a credit or debit card, that’s also possible, but keep in mind that this may incur some additional processing fees. For those who like to manage things by mail, you can send a check or money order along with Form 1040-ES. Just be sure to include your Social Security number and the tax year on your payment to ensure it gets credited properly. By selecting the payment method that suits you best, you can effectively manage your estimated taxes and stay on top of your estimated tax due dates for 2024.

Many people wonder if they can pay estimated taxes all at once instead of making quarterly payments. While it might seem convenient to make one lump sum payment, the IRS requires estimated taxes to be paid in installments throughout the year. The estimated tax due dates are typically set for April 15, June 15, September 15 and January 15 of the following year. The IRS expects you to make those estimated tax payments quarterly based on your projected income. This means you need to estimate your earnings and make calculations for each quarter. However, if you prefer to handle things more conveniently, you can pay estimated taxes online. The IRS offers several options for online payments, which can make the process easier and faster. You can use the IRS Direct Pay, Electronic Federal Tax Payment System (EFTPS), or even credit card payments to pay your estimated taxes. If you have a good estimate of your income for the year, using an estimated tax calculator can help you figure out how much to pay for each quarter. This way, you’ll be prepared and won’t have to worry about a large lump sum payment at the end of the year. FlyFin's updated estimated tax calculator helps you figure out your estimated tax payments for 2024 based on the new tax brackets and deduction limits. Here’s what it offers:

• Calculate estimated tax payments for 2024 and previous years
• Track quarterly tax dates and get reminders so you don’t miss them
• Pay your quarterly taxes online easily

FlyFin’s platform makes it simple for freelancers to understand how to file their estimated tax return and stay compliant with IRS rules. The app also has a built-in 1099 tax calculator that helps you find all possible deductions, which could lower your tax bill.