This story is part ofCNET’s coverage of the best tax software and everything you need to file quickly, accurately and on time.
What’s going on
Since the self-employed and self-employed do not have taxes withheld from their wages, they are required to pay estimated tax payments.
why does it matter
It’s important to pay quarterly estimated taxes to avoid tax penalties — and a huge tax bill — when you file your taxes.
The next estimated tax due date is June 15, 2022.
When you have a traditional hourly or salaried job, your employer withholds income taxes from your paychecks. But if you are one of the millions of small business owners, self-employed,and other self-employed taxpayers, there is no automatic mechanism for withholding their taxes. However, that doesn’t mean you won’t owe them anything when roll around
Anyone who earns income that is not subject to tax must pay estimated taxes four times a year. Making estimated tax payments not only minimizes your financial burden on tax day, but also helps you avoid IRS penalties.
The estimated tax return process can be a bit complicated, but we can make it easy for you. Here’s everything you need to know to calculate your taxes and file on time.
What are estimated taxes?
If you earn or receive income that isn’t subject to federal tax withholding throughout the year (for example, extra earnings or income from a rental property), you’ll pay as you go with estimated taxes. Estimated tax is a quarterly payment based on your income during the period. Essentially, estimated tax allows you to prepay a portion of your income tax every few months to avoid paying a lump sum on Tax Day.
Who has to pay estimated taxes?
If you have completed IRS Form W-4, which provides instructions to your employer on how much to withhold from each paycheck, you may not have to pay estimated taxes. However, if you’re not a salaried W-4 employee, you’ll probably need to keep estimated tax payments on your radar. According to the IRS, you generally have to make estimated tax payments if you expect to owe taxes of $1,000 or more when you file your return, and if your type of employment falls into one of these categories:
- Independent or self-employed contractor
- Single owner
- S corporation shareholder
There are other sources of income that fall under the estimated tax umbrella, including:
- Dividends and interest earned on sales of investments
- Royalties for previous work
- Owner rental income
- unemployment benefits
- retirement benefits
- Social Security benefits, if you have other sources of income
- prizes and awards
You may also have to pay estimated taxes as a full-time employee if your employer doesn’t withhold enough from your pay. To update your W-4 with the correct withholding amount, use the IRS Tax Withholding Estimator tool, complete a new Form W-4, Employee Withholding Allowance Certificate, and submit it to your employer.
Estimated taxes are due, regardless of whether you are paid by direct deposit, check, or. Note: While you should If you’re already paying taxes on that income, a new American Rescue Plan rule requires third-party payment networks to report payments of $600 or more to the IRS.
When are estimated taxes due?
Estimated taxes are paid quarterly, generally on April, June, September, and January 15 of the following year. One notable exception is when the 15th falls on a legal holiday or weekend. In those cases, you must file your return before the next business day.
The deadlines for 2022 estimated taxes are in the table below.
Estimated Tax Deadlines
September 1 to December 31, 2021
January 18, 2022
January 1 to March 31, 2022
April 18, 2022
April 1 to May 31, 2022
June 15, 2022
June 1 to August 31, 2022
September 15, 2022
September 1 to December 31, 2022
January 16, 2023
How do I calculate estimated tax payments?
There are a few ways to calculate your quarterly tax payments based on your business model and annual earnings.
- If you earn a steady income, figure the tax you’ll owe for the year and send a quarter to the IRS each quarter. For example, let’s say you’ll earn $80,000, which puts you in the 22% marginal tax bracket. You will owe $17,600 in federal taxes or $4,400 each quarter in 2022.
- If your income fluctuates throughout the year, you can estimate your tax burden based on your previous quarter’s income and deductions. The IRS Estimated Tax Worksheet can help you do the math.
If you overstated your earnings at the end of the year, you can fill out a 1040-ES to receive a refund or apply your overpayment to future quarterly taxes. If you underpaid, the form can help you figure out what you still owe.
How do I pay my estimated taxes?
When you file your estimated taxes, use IRS tax form 1040-ES or form 1120-W if you’re filing as a corporation. You can complete the form manually with the help of the included worksheets, or you can rely on youror tax advisor to guide you through the process and get the job done. From there, you can pay your federal taxes by mail or online through the IRS website. You’ll also find a full list of accepted payment methods and options, including installment plans.
Do I also have to pay estimated state taxes?
It depends. If you live in one of the few US states that don’t pay income taxes, your responsibility ends with the estimated federal taxes we’ve discussed. However, if your state imposes income taxes, you will make estimated tax payments using the same timeframes for federal taxes. Visit your state’s department of revenue website or consult your tax advisor orfor more personalized information.
What are the penalties if I don’t pay my estimated taxes?
It’s a good idea to post a reminder on your calendar as the quarterly deadline approaches to avoid paying a late fee. You may be charged a fine if:
- If you owe more than $1,000 in taxes after subtracting withholdings and credits.
- If you paid less than 90% of the current year’s tax through estimated taxes.
The sanction could be waived in some situations. For a more in-depth look at the estimated tax penalties and conditions of an exemption, see the instructions on IRS Form 2210.
Can I avoid paying estimated taxes?
Probably not without incurring those penalties. Some classes of workers, particularly those whoseis exceptionally modest, inconsistent, or seasonal, they are exempt from having to make quarterly payments to Uncle Sam, however:
- If your net earnings were $400 or less for the quarter, you don’t have to pay estimated taxes, but you still have to file a tax return even if you don’t owe taxes.
- If you were a US citizen or resident alien for all of last year, your total tax was zero Y did not have to file an income tax return.
- If your income fluctuates dramatically throughout the year (if you run a seasonal business, for example), you may be able to reduce or eliminate your estimated tax payments with an annualized income installment method. Check out IRS Worksheet 2-7 to see if you qualify.