Do I Need To Make Estimated Tax Payments? Easy Guide 2023

Budgeting / By Humbled Budget

Humbled Budget Team

With over 55 years of combine experience in the Finance/Tax Industries based in the United States, Our Team of Humbled Individuals' shares their wisdom gained through experience or technical knowledge acquired through Additional Education.

Table of Contents

Introduction

If you earn money that is exempt from withholding, or if the amount withheld is less than what you owe, you may need to make estimated tax payments.

Estimated tax payments are due on or before April 18 (for 2023), June 15 (for 2023), and September 15 (for 2023).

Who needs to make estimated tax payments?

Any person or business with taxable income that is not subject to withholding will need to make estimated tax payments.

You may need to make approximated tax payments if:

You are self-employed and have income not subject to withholding, such as freelance work, tips, or rental property.
Your employer doesn’t withhold enough income tax from your paycheck (or you didn’t have any wages).

Figuring when and how to pay

The IRS isn’t the only entity that wants to get its hands on your money. There’s also your state’s revenue department if you have a state income tax obligation.

You’ll need to make estimated payments on their behalf, and they’re not shy about reminding you of this fact.

You can make estimated tax payments by mail or online, by credit or debit card, check or money order (but let’s be honest: who uses checks anymore?).

The amount due is based on federal income tax withholding and other information reported to the IRS during the current year.

If those numbers don’t match up with what you owe for 2022, then you may need to increase or decrease how much is withheld from each paycheck going forward.

Do I need to pay estimated taxes?

When you file your return, you need to pay estimated taxes if you expect to owe at least $1,000 in income tax (or other tax types, like self-employment or alternative minimum).

If your withholding taxes are more significant than the income tax you expect to owe for the year, you don’t have to pay estimated taxes.

Which option should I choose?

The IRS needs you to pay tax on your income yearly, but they don’t need you to pay it in one lump sum.

You can choose to pay the tax that you owe for the year in four equal installments, or you can pay half of what is expected from each paycheck. For example:

If you had an annual salary of $40,000 and owed $4,000 for taxes at the end of each month, your estimated monthly payments would be $200.

Your employer will withhold these amounts from each check. If instead of paying all at once when filing your return at the end of April and May (and therefore getting a refund), you paid based on estimates during those months additionally, there will be no need for an additional payment after April 15 since it would have already been taken care of automatically by your employer via withholding.

How should I calculate how much I owe?

To find out what you owe in estimated taxes, follow these steps:

Use Form 1040-ES. If you’re self-employed or own a business, use the form 1040-ES to determine your annual tax payments.

This form will help you determine if you have enough withholding from your wages and other income sources to avoid additional penalties.

Use software or a tax professional. You can use online tax preparation software or hire someone to prepare your return for you instead of using the forms provided by the IRS.

These third-party products are often less expensive than hiring an accountant or attorney because they do not require an appointment with them – and they will allow users to easily calculate their estimated taxes before submitting them electronically via email or fax.

What if I don’t pay?

If you don’t pay, you may be charged a penalty. Suppose the IRS determines your tax liability will be $1,000 or more after subtracting your withholding and any credit for excess advance premium tax credit payments. In that case, federal law requires you to make estimated tax payments.

The IRS bills taxpayers each quarter based on their projected annual income taxes. The amount they bill is called a “pay-as-you-go” (PAYGO) assessment.

If your withholding does not cover all of your tax liability for the year, or if other credits are claimed that reduce the amount of taxes owed by more than 10%, you must make estimated tax payments.

Your required payment will increase if any one of these circumstances occurs:

You received additional wages during the year from new employers
You changed jobs during the year and started working overtime (or previously untaxed tips) with little or no change in salary

Should I pay in equal amounts?

While the most common method is to pay in equal amounts, any technique you use must be based on your income, deductions, and exemptions.

The IRS recommends using their online tax calculator to determine how much-estimated tax you should pay. You can find more information about estimated taxes on the IRS website here.

For fishermen and farmers

For fishermen and farmers, estimated tax payments are due on April 15, June 15, September 15, and January 15.

In many cases, if you expect to owe at least $1,000 in taxes, you must make estimated payments of federal income tax after subtracting your withholding and refundable credits.

However, if you have self-employment income that does not include benefits from an employer (such as group health insurance), you do not have to make estimated tax payments for the months that cover that income.

Estimated taxes are paid on the 15th day of each month for the upcoming quarter (i.e., April 15 is due on March 20). If the date falls on a weekend or holiday that’s recognized by the IRS, including:

Birthday of George
Washington (the third Monday in February) and Memorial Day (May 28). Instead, your payment will be on the following business day.

If your payment is delayed by more than ten days after it was initially due, penalties may apply; however, if there are extenuating circumstances like military service or a reasonable cause such as illness or natural disaster beyond your control, then please get in touch with us directly so we can discuss possible solutions with an experienced representative who can help ensure everyone gets what they need while keeping things fair across all taxpayers.

If you have income that’s not subject to withholding or the withholding

Estimated tax payments are due in four installments. You can make estimated tax payments using Form 1040-ES, Estimated Tax for Individuals, or pay by mail.

You can also use your phone to pay or online through the Electronic Federal Tax Payment System (EFTPS), a free service the IRS provides.

First installment: By January 15, 2023
Second installment: Estimated taxes are generally due on April 15 (or April 17 if you file for an extension). If your income was more than $100,000, you must make this payment on May 31 instead of April 15.
Third installment: June 17
Fourth installment: September 17 or September 18 if you filed for an extension

Conclusion

In summary, you may need to pay the estimated tax if you expect to owe more than $1,000 in taxes for the current year after subtracting your withholding and credits.

If so, use Form 1040-ES and Form 1040-ES (NR) or Form 1040-ES (PR) and Form 1040-ES (SS). When the time comes to make payments, the IRS will send you a bill.