What Are Estimated Tax Payments ... and Who Are They For?

You can't escape taxes, no matter how much you wish you could. Paying taxes can be confusing, especially if you have unique circumstances.

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Estimated tax payments only apply to certain situations, but if a tax professional recommended that you make them this year, it’s good to know what you’re getting yourself into.

What Are Estimated Tax Payments?

Estimated tax payments are payments you make to the IRS based on what you'll likely owe for income taxes. It applies to income you receive that doesn't have taxes withheld automatically. For some people, that's earned income for work done as a freelancer, an independent contractor or a small business owner. It can also apply to income from capital gains, rental income, interest, alimony, prize money, dividends and other money you receive. Instead of having taxes taken out of that money before you receive it, you pay the tax amount yourself.

Some states also require estimated payments for your state income taxes. The amount, due dates and qualifications for needing to make the payments are established by each state and may vary from the federal requirements.

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Why Is My Accountant Asking Me to Make Estimated Tax Payments?

Your accountant might recommend making estimated tax payments if you have income that's not subject to withholding. Employers typically take out taxes from the pay of regular employees before they receive their paychecks. They send that money to the IRS to satisfy your tax obligations.

If you're a small business owner, freelancer, independent contractor or investor, you're responsible for paying the taxes yourself. No one takes the tax payments out of your income before you receive it, but you still owe taxes on the amount you receive. Some taxpayers also need to make estimated payments even if their employers take out taxes. If you expect to owe taxes for the year because your employer doesn't take out enough taxes, you may need to make the estimated payments.

As an individual, you typically need to pay estimated payments if you'll likely owe $1,000 or more in taxes on the income. This also applies to sole proprietors, partners and S corporation shareholders. For corporations, estimated tax payments are usually required if the expected tax amount is $500 or more.

Whether you make estimated tax payments or not, you'll eventually have to pay the taxes on your income. When you file your taxes, it will likely show that you owe instead of getting a refund. Failing to make estimated tax payments or paying them late could result in penalties. That's true even if you receive a refund.

An accountant or tax professional is an ideal source for finding out whether you need to make these payments. Your accountant can calculate how much you should owe for taxes so you can make estimated tax payments if you're required to do so.

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How Do You Make Estimated Tax Payments?

You pay your estimated tax payments directly to the IRS. If you want to mail a payment, you can send a check or money order along with Form 1040-ES. This form details where to send your payment, which varies based on where you live. Fill the form out completely and check for the correct address.

You have the option to pay over the phone with a debit or credit card by calling one of the IRS's service providers. Online payments give you the most flexibility with options for paying with a checking account, savings account, debit card, credit card or digital wallet.

When Are They Due?

Estimated tax payments are due every quarter. The tax payments are typically due by the 15th of the month following the end of the quarter. For instance, the first quarter runs from January 1 through March 31. Taxes for the income you earn during that quarter are due by April 15. The typical due dates are:

• April 15
• June 15
• September 15
• January 15 of the following year

The due date moves to the next business day if it lands on a weekend or legal holiday. You can pay your estimated taxes more frequently as long as you pay the amount due for the quarter by the deadline. For instance, you might pay monthly rather than quarterly to have smaller payments.