The payments made by self-employed people or those with other sources of income that are not subject to withholding are known as estimated taxes. These payments cover not only income tax but also self-employment tax and alternative minimum tax. To make sure that taxpayers are not underpaying their taxes for the entire year, the IRS mandates that these payments be made on a quarterly basis. You might be required to make anticipated tax payments in order to avoid fines if you work for yourself or have a sizable income from other sources.

Who Must Make Estimated Tax Payments?

You might be required to use Form 1040-ES to make estimated quarterly tax payments if you anticipate owing more than $1,000 in federal taxes for the tax year. Estimated tax payments have specific deadlines and obligations that taxpayers must adhere to in order to avoid penalties. This is due to the IRS’s requirement that you pay taxes on any income you receive or generate. You most likely won’t be required to pay estimated quarterly taxes if your federal income tax withholding (plus any timely estimated taxes you paid) equals at least 90% of the total tax you will owe for this tax year, or at least 100% of the total tax on your prior year’s return (110 percent for AGIs greater than $75,000 for single and separate filers and $150,000 for married filing jointly).

How Do Estimated Taxes Get Determined?

You must estimate your income and deductibility accurately in order to compute your estimated taxes on your federal tax return. Understanding your tax liability is crucial as it helps determine whether you need to make estimated tax payments throughout the year. The estimated tax worksheet is available in the Form 1040-ES instructions. Using the information from your previous year’s return, this worksheet assists you in estimating your tax obligations. If you live in South Carolina, you can calculate your estimated tax using the information from your most recent SC income tax return. To determine your adjusted South Carolina taxable income if you are a nonresident, utilize the Schedule NR and your SC income tax return from the prior year. Making estimated tax payments can help you avoid potential penalties for underpayment.

Due Dates for Estimated Tax Payments

The fifteenth day of the fourth, sixth, and ninth months of the tax year, as well as the first month of the subsequent tax year, are often when estimated tax payments are due. For most people, this translates to the following year’s April 15, June 15, September 15, and January 15. Missing these deadlines can result in an estimated tax penalty, which is a penalty for underpayment when taxpayers don't pay enough taxes throughout the year. To avoid fines, it is imperative that these taxes be paid accurately and on time. Learn more about what happens if you miss a quarterly tax payment.

Computing Self-Employed Individuals' Estimated Tax Payments

If you work for yourself, you must figure out how much tax you will owe, including self-employment tax, based on the revenue and costs of your business. To estimate your taxes for the current year, you can refer to your tax return from the prior year. Don’t forget to add all of the income and deductions you plan to claim on your tax return for the current year. The estimated tax worksheet can be used to assist you in figuring out your payments.

Penalties for Estimated Tax Underpayment

You can incur penalties if you fail to pay the required amount of estimated taxes. Estimated payments are made in four installments throughout the year and are crucial for self-employed individuals to avoid penalties for underpayment. How much you owe the IRS and how long you have been behind on your payments will determine the penalty. If you fail to make your payments by the deadline and in the required quantity, you can also be assessed a penalty. You might also be assessed a penalty if you fail to pay at least 90% of the entire amount owed in taxes. To avoid penalties, it is essential to make timely estimated tax payments equivalent to 100% of the tax that appears owing on your SC1040 for the previous tax year. Learn how to avoid tax penalties.

How to Pay the IRS Estimated Taxes

The IRS accepts anticipated tax payments in a few different ways for those who need to pay estimated taxes. Payments can be made via mail, phone, or the internet. Using MyDORWAY is the simplest method for paying estimated taxes. Electronic payments can also be made through the IRS’s Electronic Federal Tax Payment System (EFTPS). You can also mail the payment to the IRS in the form of a check or money order. If you have overpaid, you might want to read about the overpayment of estimated taxes.

Final Thoughts

It is essential for independent contractors and anyone with substantial income from various sources to comprehend anticipated taxes. You may prevent penalties and make sure you are paying your taxes correctly all year long by ensuring that your estimated tax payments are accurate and made on time. To determine your projected tax payments, it is best to utilize the estimated tax worksheet and your tax return from the prior year. In order to avoid fines, you need also make payments by the deadlines. You can make sure you're fulfilling your tax duties and staying out of trouble by adhering to these rules. For more details, check out the estimated tax payments for 2024.

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