Estimated tax payments and Form 1040-ES

Income tax is a pay-as-you-go system. How you do that can vary based on your work and tax situation. Not everyone will need to pay estimated tax payments, but if you do, we’re here to help you.

It might seem like a chore to estimate your taxes, but if you properly calculate and pay these taxes, you’ll stay on track with your tax obligations.

In short, estimated payments should include your income and self-employment taxes. Federal estimated tax payments are figured and paid via Form 1040-ES – which is different from  IRS Form 1040.

Read on as we share details about who pays, how to calculate and pay federal estimated tax payments, and when to file Form 1040-ES.

Do you have more estimated tax and Form 1040-ES questions? Check out our Guide to Gig Worker Taxes.

Who pays estimated tax?

Certain taxpayers need to make quarterly estimated tax payments toward the amount they expect to owe the Internal Revenue Service (IRS), or you might face an IRS penalty.

You’ll need to make estimated quarterly tax payments if:

You won’t have enough withholding tax to cover your tax bill

You’ll need  to make estimated payments throughout the year if you expect to owe $1,000 or more in federal income taxes this tax year, even after taking your withholdings (such as W-4 withholdings for W-2 employees)  and refundable tax credits into consideration or if your current tax withholding and refundable credits cover less than 90% of your tax liability for this year, or 100% of your liability last year – whichever amount is smaller. The threshold is 110% if your Adjusted Gross Income (AGI) last year was more than $150,000 for Single, Qualifying Surviving Spouse, and Married Filing Jointly, or $75,000 for Married Filing Separately.

Failure to make estimated payments to cover under-withholding can result in estimated tax penalties.

You’re a small business owner, freelancer, or independent contractor

Self-employed individuals, including sole proprietors, partners, and S-corporation members or shareholders, typically have to make an estimated tax payment each quarter if they expect to owe $1,000 or more in the current tax year and they expect withholding and refundable credits to be less than 90% of the tax for the current tax year or 100% of the tax for the previous tax year.

Not sure of your status? Check out our post: How to know if you’re an employee or independent contractor (or freelancer).

Corporations generally must make estimated tax payments if they expect to owe tax of $500 or more when their return is filed. Head to Block Advisors to read more about Form 1120-W if this applies to you.

You receive a large sum of untaxed income

You might make estimated income tax payments if you receive a substantial amount of taxable income not subject to tax withholdings. Example of income that could result in paying estimated taxes include:

• Interest
• Dividends
• Rents
• Stock sales
• The sale of a home that doesn’t qualify for Home Sale Exclusion. (If you sell a house, you may or may not pay tax on the gain. It depends on whether you qualify for the exclusion. More details: “The tax implications of selling your home”)

In the instances above, if you have other income that includes W-2 wages, you might be able to withhold enough tax to avoid IRS estimated tax payments. Skip ahead to determine your quarterly estimated tax payments to see if this case applies to you.

How to pay quarterly taxes

If you’re wondering how to pay estimated taxes, you can make tax payments using any of these payment options.

1. Mail a check or money order with Form 1040-ES: Estimated Tax for Individuals.
2. Use the Electronic Federal Tax Payment System (EFTPS) to submit payments electronically. Visit http://www.eftps.gov or call 1-800-555-4477 for more details. You can make quarterly payments weekly, monthly, or quarterly up to 365 days in advance.

Generally, the IRS accepts checks, money orders, or credit card payments for estimated income tax.

How to calculate your quarterly estimated tax payment

To file your estimated income tax payments, you should know how to calculate them. There are a couple/few of ways to go about it as we outline below. Be sure you understand the implications of each.

Estimated taxes calculation – Quick method

You can use last year’s tax numbers to get a rough estimate of your tax requirement for each quarter.

• You could take what you owed in taxes on your tax return and divide that number by four. Adjust for increases or if income drops
• If you made estimated tax payments in the previous year, then you could reference bank or credit card statements for the months you made those payments and use those amounts…
  • You could take what you owed in taxes on your tax return and divide that number by four. Adjust for increases or if your income drops.
  • If you made estimated tax payments in the previous year, then you could reference bank or credit card statements for the months you made those payments and use those amounts from www.IRS.gov/Individuals/Get-Transcript. A tax transcript will give you information about estimated payments that have been applied to your account.

How to figure out your quarterly estimated tax payment – step-by-step

To get closer to the amount you’d actually need to pay each quarter, follow these steps:

1. Estimate your total income for the tax year

Tally your self-employment income, investment income (including dividends, interest, and capital gains), and other income (such as rental income, alimony, or unemployment benefits.)

2. Calculate your taxable income

Subtract any tax deductions that apply to your income (such as the standard deduction) to arrive at your taxable income.

4. Apply the appropriate tax rates

Use the tax brackets applicable for the year to calculate the federal tax owed on your taxable income.

5. Include other taxes

Don’t forget to include self-employment tax if applicable, and any other relevant taxes.

6. Subtract tax credits

Subtract any tax credits you qualify for.

7. Calculate total tax liability

This is the total amount of tax you owe for the year after credits.

8. Subtract taxes withheld

Subtract any tax payments already withheld or paid.

9. Determine quarterly payment amounts

Divide the total estimated tax you owe by four to determine your quarterly payments.

Looking for more guidance on estimating tax payments? The IRS provides Form 1040-ES, Estimated Tax for Individuals, which includes a worksheet to help you calculate your estimated tax payments. You can also use this form to mail your payments or make payments online.

Answer a few questions, and our tax calculator will estimate your refund or the amount you might owe the IRS, use our tax calculator. Or are you wondering how to do this in My Block?  Here are pointers on how to figure out estimated tax on MyBlock in our Help Center page.

How do I avoid estimated tax payments?

You can avoid estimated tax penalties and the requirement to make payments, but you meet specific criteria. You don’t have to pay estimated tax payments for the current year if, during the prior tax year:

• You had no tax liability for the prior tax year,
• your tax year covered a12 month period, and
• you were a U.S. citizen or resident alien for the whole year.

What happens when you don’t pay IRS estimated taxes?

If you’re wondering what happens when you don’t pay your estimated taxes, we’ll detail the information now. Because U.S. taxes are pay as you go, there an IRS penalty is applied if you don’t keep up with your tax obligations throughout the year.  That means you could face underpayment penalties when you go to file your annual return. With that in mind, it’s wise to pay quarterly taxes consistently and on time if you owe them.  

Related: Check out our article on missed estimated tax payments?

When to file Form 1040-ES

Above, we outlined when to file form 1040-ES as it applies to your circumstances. Now we’ll cover the actual dates to send your 1040-ES form and payment to the IRS. Remember, you’ll need to do it four times per year.

When are estimated taxes due?

Estimated tax due dates are generally on:

• April 15
• June 15
• Sept. 15
• Jan. 15

If these due dates fall on a Saturday, Sunday, or a legal holiday, the payments are due the next business day.

Get help with IRS estimated tax payments

Figuring out estimated tax payments can be knotty. Yet it’s also a crucial part of managing your taxes, especially if you are self-employed, have investment income, or receive other types of income not subject to tax withholding, so it’s important to get it right.

Thankfully, you don’t have to tackle taxes alone. Don’t hesitate to lean on our online tax products or our tax professionals.

Have a side business? Take control of your taxes and get every credit and deduction you deserve with our online tax software. File with H&R Block Online Deluxe (if you don’t have business expenses) or H&R Block Self-Employed (if you have business expenses).

Have questions about self-employment taxes and other small business tax issues? If you’re a small business owner, you may want help with your estimated tax payments and other small business services. Rely on our team of small business certified tax professionals at Block Advisors to get your taxes right and keep your business on track.