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Estimated Income Tax Payments

Estimated
Tax Payments

Estimated income tax payments are made to pay taxes on income generated in a given tax year - now 2021 - that is not subject to periodic tax withholding payments as wages are via the W-4 form. Generally, if you are an employee whose only income is from a W-2 with taxes withheld, you will not have to worry about making estimated income tax payments as this is done through your employer.

We are now currently in a period where taxpayers are making estimated tax payments for the tax year 2021 to prepare for their 2021 returns. Quarterly estimated tax payments are made by the taxpayer so they are not in significant debt to the IRS. 

The most common taxpayers who are subject to make estimated tax payments are the self-employed who may receive income on a 1099 form, such as a 1099-NEC. If you receive taxable income with no tax withheld, you are responsible for making these income tax payments on your own as you do not have an employer to do this for you. Employees who receive a W-2 have their taxes withheld based on the W-4 withholding form they submit. 1099 employees do not have this and should make estimated payments so they do not owe tax penalties at the end of the year. 

If a taxpayer generates the following types of incomes throughout a given tax year, it may be subject to estimated income tax payments via periodic payments:

Who Should Make Estimated Tax Payments

Beyond the above listed income types, here are the general guidelines on who should make estimated income tax payments: 

  • Expected income tax amount for the given tax year is at least $1,000 after deducting withholding and refundable tax credits. This is when you file your tax return, you expect to owe at least $1,000.
  • Tax withholding and refundable tax credits are less than the smaller of:
    • 90% of the taxes of your 2021 tax return, or
    • 100% of the taxes shown on your 2020 tax return.
    • In other words, you can use your exact figure from your previous year return or you can estimate within 10% of your anticipated 2021 tax balance.

Of course, these are just estimated. If you underestimate by a small enough amount, you should not owe penalties and will instead simply owe the difference in tax when you prepare and file your 2021 tax return. If you over estimate during the year, then you will be owed a tax refund, similarly to when an employer withholds too much tax during the year. When you prepare your return on eFile.com, you can input the estimated tax payments you have made. The eFile tax app will put them on your return and help you determine if you owe additional tax or if you are owed a tax refund. 

In general, if you expect to owe tax at the end of the year, you should make these estimated payments. Quarterly tax payments should be made four times per year and the IRS does have guidelines or deadlines for these timeframes. These are as follows:

  • April 15, 2021 for income earned January 1 - March 31, 2021.
  • July 15, 2021 for income earned April 1 - May 31, 2021.
  • September 15, 2021 for income earned June 1 - August 31, 2021.
  • January 15, 2021 for income earned September 1 - December 31, 2021.

Payments can be made close to these dates, but taxpayers may find it easiest to make payments around the due date that way they can keep a consistent schedule.

Like with most taxing guidelines, there are exceptions to this. You don't have to pay tax estimates for 2020 if the following apply: 

  • You were US Citizen or resident alien during 2021 and you had no tax liability for the full 12 month 2021 Tax Year. No tax liability for 2021 means your tax was zero or you are not required to file an income tax return.
  • There are special rules for farmers, fishermen, certain high income individuals, and certain household employees.
    • If a majority of income is from farming or fishing, the 90% guideline above is lower at around 66%. 
    • Household employees will want to work with their employer to see how their taxes are to be handled (if they have tax withheld from other income, if they would be required to make estimated payments if household employment taxes were excluded, etc.).
    • If your Adjusted Gross Income (AGI) was greater than $150,000 for 2020, then, you should make payments if your estimated withholding and credits are less than 110% of your 2020 taxes (instead of 100%).
  • For more details, see instruction on Form 1040-ES.

Online Payment Options

Estimate your Income Taxes

Important Tax Tips on how to estimate your given calendar year tax amount:

  • Use the free eFile.com 2021 Tax Year Tax Calculator and estimate your income and taxes for the year:

2021 Tax Year Calculator

  • If you also receive W-2 income in addition to the income types listed above, you can increase your federal tax withholding via Form W-4. The W-4 form has a line that allows you to withhold an additional income tax amount. Use the eFile.com WITHHOLDucator to calculate the given calendar year tax return.
  • If your income changes throughout the year, you should make estimates based on the annualized income installment method. See instructions on Form 1040-ES or Publication 505 on Tax Estimates chapter 2.
  • The IRS may apply a penalty if you didn’t pay enough estimated taxes for the year, you didn’t pay the required estimate amount, or didn't pay on time.

Form 1040-ES and Payment Methods

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