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.
- They expect to owe $1,000 or more when filing their federal income tax
- 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.
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
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