Who Should Pay Quarterly Estimated Taxes?

Taxpayers who file income taxes as self-employed individuals, sole proprietors, partners, or S-corporation shareholders may be required to pay quarterly estimated taxes. Failing to make quarterly payments or willfully underpaying in April, June, September, and January can result in penalties and large amounts owed when the end of the year rolls around.

Quarterly Estimated Taxes May Be Required If These Situations Apply

Section 6654 of the tax code requires that taxpayers make quarterly estimated payments and file Form 1040-ES: Estimated Tax for Individuals if both of these situations apply.

1. They expect to owe $1,000 or more when filing their federal income tax
2. The total of their withholding and refundable credits will be less than the lesser of:

• 90 percent of their tax liability for the current year
• 100 percent of their previous year’s tax liability

Generally, freelance workers, contractors, online sellers, and people who participate in the gig economy are required to pay quarterly estimated taxes because they don’t have taxes withheld from their paychecks automatically throughout the year. Landlords and investors may need to make quarterly payments as well, even if their employers withhold taxes.

Quarterly payments are generally due on April 15, June 15, September 15, and January 15, but payments may be pushed to the next business day when the dates fall on a holiday or weekend. Taxpayers who earn two-thirds of their annual income from farming or fishing activities are required to only make one payment, which is usually due on January 15 each year.

Individuals who did not have tax liability for the prior year, were U.S. citizens or resident aliens for the entire year, and whose prior tax year covered a full 12 months are not required to pay estimated tax payments.

Making Quarterly Estimated Taxes

Taxpayers have several options for paying their quarterly taxes. When filing their annual tax return, they may apply any refund due to their next quarter’s tax payment. They may also make smaller monthly payments throughout the year.

Many people hire a tax attorney to help calculate their estimated taxes.  Tax lawyers often file and make payments on their clients’ behalves. Taxpayers who handle their own payments can either mail Form 1040-ES and a check or money order each quarter or make a payment through the IRS Direct Pay System or the U.S. Treasury’s Electronic Federal Tax Payment System.