You can also make payments more often if you like, says Bess Kane, a CPA in San Mateo, California. “I think it's easier to make 12 smaller payments than four larger payments," says Kane.
Generally, taxpayers should make estimated tax payments in four equal amounts to avoid a penalty. However, if you receive income unevenly during the year, you may be able to vary the amounts of the payments to avoid or lower the penalty by using the annualized installment method.
Alternatively, taxpayers can schedule electronic funds withdrawal for up to four estimated tax payments at the time that they electronically file their Form 1040. Taxpayers can make payments more often than quarterly. They just need to pay each period's total by the end of the quarter.
If you're making estimated tax payments and have federal income tax withholding, you can increase your quarterly estimated tax payments or increase your federal income tax withholding to cover the tax liability.
You can make separate estimated tax payments and still file a joint return. If you file a joint return, you would add the estimated tax payments each of you made. The form 1040 instructions for line 26 (estimated tax payments) says (taking 2022 as an example):
In most cases, if you expect to owe $1,000 or more in taxes for the year even after withholding, you need to make quarterly payments to avoid a penalty.
If you miss the deadline for a quarterly tax payment, the IRS automatically charges you 0.5% of the amount that you didn't pay for each month that you don't pay, up to 25%. To find out how much you owe up to this point, you can use a tax penalty calculator.
If the Adjusted Gross Income (AGI) on your previous year's return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year's return or 110% of the tax shown on the return for the previous year.
Estimated Taxes: Making Quarterly Payments
These are due four times during the year: in January, April, June and September. If you don't pay enough tax by the due dates, you may get hit with a penalty when you file your taxes by the deadline even if you're owed a refund.
Pay all of your estimated tax by January 16, 2024. File your 2023 Form 1040 or 1040-SR by March 1, 2024, and pay the total tax due. In this case, 2023 estimated tax payments aren't required to avoid a penalty.
One of those rules is that individuals must pay 90% of taxes as they earn or receive income during the year (not when their income tax return is due), either through withholding, estimated tax payments, or a combination of the two.
Identifying and Reporting Duplicate Payments to the IRS
Your first step should be to confirm that the duplicate payment has indeed occurred. You can do this by checking your bank statements or your online IRS account. Once you've confirmed the duplicate payment, your next step should be to contact the IRS.
You get an overpayment credit when your tax payments exceed what you owe. You'll automatically receive a refund of the credit. However, you can ask us to apply the credit as an advance payment towards next year's taxes instead of sending it to you as a refund.
Underpayment penalties are typically 5% of the underpaid amount and they're capped at 25%. Underpaid taxes also accrue interest at a rate that the IRS sets quarterly.
Visit IRS.gov to use the Electronic Federal Tax Payment System. Here you can make payments weekly, quarterly, or monthly, and you can set up payments up to a year in advance.
Making Estimated Tax Payments
The Internal Revenue Service requires a taxpayer to pay at least 90% of their current year income tax liability, or the prior year “safe harbor” 100% or 110% amount, whichever is smaller.
Estimated taxes used to be paid based on a calendar quarter, but in the 60's the Oct due date was moved back to Sept to pull the third quarter cash receipts into the previous federal budget year which begins on Oct 1 every year, allowing the federal government to begin the year with a current influx of cash.
Simply put, underpayment of estimated tax occurs when you don't pay enough tax when you pay quarterly estimated tax payments. Failure to pay the right amount of estimated tax throughout the year might result in a penalty for underpayment of estimated tax.
When Are Quarterly Taxes Due? Quarterly taxes aren't actually due every three months because the first payment is due in April to coincide with the federal tax-filing deadline and the last payment is due after the end of the year.
Additionally, if you submit your 2023 federal income tax return by Jan. 31, 2024, and pay the entire balance due at that time, you won't have to make the final estimated payment for 2023, which would normally be due on Jan. 16, 2024.
The IRS may issue a penalty if you miss a quarterly tax payment deadline. The penalty is 0.5% of the amount unpaid for each month, or part of the month, that the tax isn't paid. The amount you owe and how long it takes to pay the penalty impacts your penalty amount.
There are three steps to calculating estimated tax payments. The steps involve calculating your taxable income based on your marital status and income; computing any credits and deductions you may be eligible for, such as child tax credits or credits for taxes already withheld, and calculating your remaining tax due.
Having enough tax withheld or making quarterly estimated tax payments during the year can help you avoid problems at tax time. Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year.
Estimated tax is a quarterly payment of taxes for the year based on the filer's reported income for the period. Most of those required to pay taxes quarterly are small business owners, freelancers, and independent contractors. They do not have taxes automatically withheld from their paychecks, as regular employees do.