If you have a salaried job, your employer probably withholds income tax from each salary. But if you’re one of the millions of small business owners, freelancers, gig workers, and other self-employed taxpayers, there’s no automatic mechanism for withholding your taxes.

Instead, you probably had to calculate your projected taxes and make regular quarterly payments throughout the fiscal year. The deadline to make a payment for the fourth and last quarter of 2021 is Tuesday, January 18, 2022.

If you file estimated quarterly taxes, but have paid too little or nothing so far, the IRS says you should always try to make a payment now, rather than waiting for the filing deadline. of April 18, to “avoid a surprise invoice and possible penalty.”

This is because the IRS penalty calculation takes into account the date the payment or payments were made.

“If a taxpayer failed to make the required quarterly estimated tax payments earlier in the year, promptly making a payment to cover these missed payments will generally reduce and may even eliminate any potential penalty,” the agency said in a statement.

Although the estimated tax return process is a bit complicated, we have included detailed information below to guide you through it. To find out more, here when your 2021 IRS tax return is due, how ffile your taxes for free and best tax preparation software for 2022.

What are the estimated taxes?

If you earn or receive income that is not subject to federal tax withholdings throughout the year – secondary income or income from a rental property, for example – you will pay as you go with estimated taxes. Estimated tax is a quarterly payment based on your earnings for 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 the 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. If you’re not a salaried W-4 employee, however, you should probably keep estimated tax payments on your radar. According to the IRS, you must pay estimated taxes if you expect to earn at least $1,000 in 2021 and your type of employment falls into one of these categories:

  • Independent contractor or freelancer
  • sole proprietor
  • Partner
  • Shareholder of company S

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’s rental income
  • Pension
  • 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 does not deduct enough from your salary. To update your W-4 with the correct withholding amount, use the IRS Withholding Tax Estimator Tool, complete a new Form W-4, Certificate of Withholding Allowance employee and submit it to your employer.

Estimated taxes are due whether you are paid by direct deposit, check, or digital payment services like PayPal, CashApp, Zelle, or Venmo. Note: While you should already paying taxes on that income, a new US bailout 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, usually on April 15, June, September and January of the following year. A notable exception is when the 15th falls on a holiday or weekend. In these cases, you must file your return no later than the next business day.

Deadlines for estimated taxes for 2021 are listed below.

January 1 – March 31 April 15, 2021
April 1 – May 31 June 15, 2021
June 1 – August 31 September 15, 2021
September 1 – December 31 January 18 (January 15, 2022 was a Saturday, and Monday, January 17 was observed as Martin Luther King Jr.

The deadlines for the 2022 provisional taxes are shown in the table below.

Estimated tax deadlines

WINNING PERIOD TAXES DUE

September 1 – December 31, 2021

January 18, 2022

January 1 – March 31, 2022

April 18, 2022

April 1 – May 31, 2022

June 15, 2022

June 1 – August 31, 2022

September 15, 2022

Sep 1 – Dec 31 2022

January 16, 2023

How to calculate estimated tax payments?

There are several ways to calculate your quarterly tax payments depending on your business model and your annual income.

  • If you earn a stable income, estimate the tax you will have to pay for the year and send a quarter to the IRS each quarter. For example, let’s say you will 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 varies throughout the year, you can estimate your tax burden based on your income and deductions from the previous quarter. The IRS Estimated Tax Worksheet can help you do the math.

If you overestimated your income at the end of the year, you can file a Form 1040-ES to receive a refund or apply your overpayment to future quarterly taxes. If you underpaid, the form can help you calculate what you still owe.

How do I pay my estimated taxes?

When filing your estimated taxes, use IRS tax form 1040-ES or Form 1120-W if you are filing as a corporation. You can complete the form manually using the included worksheets, or you can rely on your tax software or your favorite tax advisor to walk 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 with no income tax, your responsibility ends with the estimated federal taxes we discussed. However, if your state levies income taxes, you will make estimated tax payments using the same timelines as for federal taxes. Visit your state’s Department of Revenue website or consult your tax advisor or tax software service for more personalized information.

What are the penalties if I don’t pay my estimated taxes?

It’s a good idea to post a calendar reminder as the quarterly deadline approaches to avoid paying a late penalty. You may be charged a penalty if:

  • You forgot to pay the estimated taxes or your payment was less than 90% of the amount of taxes due
  • In some cases you too much paid

If you want to dig deeper into the estimated tax penalties and conditions for a waiver, see the instructions for IRS Form 2210.

Can I avoid paying estimated taxes?

Probably not without incurring these penalties. Certain categories of workers – in particular those whose Income is exceptionally modest, inconsistent or seasonal – are exempt from having to make quarterly payments to Uncle Sam, however:

  • If your net income was $400 or less for the quarter, you don’t have to pay any estimated taxes, but you still have to file a tax return even if no taxes are due.
  • If you were a U.S. citizen or resident alien for all of 2020, your total tax was zero and you did not have to file a tax return
  • If you are a farmer or a fisher and two-thirds or more of your gross income comes from farming or fishing, the first three pay periods do not apply to you. Your only payment due date for 2021 estimated taxes is January 18, 2022.
  • If your income fluctuates significantly throughout the year (if you run a seasonal business, for example), you may be able to reduce or eliminate your estimated tax payments through an annualized tax installment method. Refer to IRS Worksheet 2-7 to see if you qualify.

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