Once you’ve filed your income tax return, you may be ready to put some distance between you and the IRS and turn your attention to other things. If you’re employed, you probably can take a breather, since your employer will handle ongoing income tax payments for you through the wage withholding process. But it’s a different story if you receive other forms of taxable income — from self-employment, rental property, or investments, for example. When that’s the case, you’ll typically be required to make estimated tax payments during the year.
Generally, you must pay estimated tax if you expect to owe at least $1,000 in, after subtracting withholding and refundable tax credits.
When Are Estimated Taxes Due?
Estimated taxes generally should be paid in four equal quarterly installments. The due dates for the four estimated tax payments are April 15, June 15, and September 15, and January 15. If you receive income unevenly during the year, your required estimated tax payments may not be the same for each period under the IRS’s “annualized income installment method.”
How Much Is Enough?
The IRS can charge an underpayment penalty if you don’t pay enough estimated tax for the year or if you don’t make your payments on time or in the required amount. The IRS generally requires estimated tax payments to total at least (1) 90% of your current year tax liability or (2) 100% of your prior year tax liability, whichever amount is smaller. However, if your prior year adjusted gross income was more than $150,000 ($75,000 if your filing status was married filing separately), your estimated tax payments should be at least (1) 90% of your current year tax liability or (2) 110% of your prior year tax liability, whichever amount is smaller. If you or your spouse is employed, it may be possible to avoid the need to make estimated tax payments by having more tax withheld from your wages. To adjust your withholding, file a new Form W-4 with your employer. Taxpayers who had no tax liability for the last tax year (the full 12-month period) and were U.S. citizens or residents for the whole year don’t have to make current year estimated payments