Who, What, Where, When, Why of Estimated Taxes
Updated: Aug 16
The IRS likes when you pay them. Plain and simple. For taxpayers who earn their income through a W2 job, they are automatically paying federal income tax with every paycheck (at least, you should be. If not, your company is doing something wrong). But for those who own their business or are an independent contractor and given a 1099 each year, you don’t have the “luxury” of paying your taxes evenly throughout the year. The general rule of thumb is that you must pay at least 90% of your taxes throughout the year through withholdings, estimated tax payments or a combination of the two. If you are required to make estimated tax payments, here are step-by-step instructions, below, on how you can make those payments online.
If you live in a state with income tax, you must also pay estimated taxes to your state. The following steps may vary a bit, but the overall concept will be the same. Head to your state’s tax commission website to submit those payments.
Must I Make the Payments by the Deadlines on My Tax Return?
Side note: there are, technically, due dates for quarterly estimated tax payments (Q1 is due 4/15, Q2 is 6/15, Q3 is 9/15, and Q4 is due on 1/15 of the following year). I highly encourage those of you who need to pay estimated taxes, to pay an even amount on each due date, but you are allowed to pay taxes at any time throughout the year. You don’t have to wait for a due date. If you missed a due date and ended up getting the money a few weeks later, go ahead and submit it to the IRS.
How Much Do I Pay?
The answer differs based on each individual tax payer, but here are a couple of things to note when deciding how much to pay with an estimated tax payment.
Do you think your business will make more money this year?
if Yes, pay at least the same amount of tax you paid in the prior year
if No, pay at least the same amount of tax you paid in the prior year (see what I did there)
The amount of tax you paid is not the bottom figures from your tax return under, "Refund" or "Amount You Owe". The tax you paid is reported on line 24 of your 2020 tax return under "Total Tax"
If your business is growing astronomically, then you'll likely need to pay more than you did in the prior year. In this case, you can do a quick estimate by forecasting your profit for the year and multiplying that amount by your income tax rate for the most recent year. This will get you close. No need to over-engineer it if this is your first rodeo.
At the end of the day, you need to decide if you'd rather owe the IRS, or have them owe you. Paying the amount of tax you owed last year is a safe way to prevent the IRS from enforcing any unnecessary interest and penalties on you.
Step-By-Step on How To Make a Payment To The IRS
Head to https://www.irs.gov/payments
Indicate in the first box titled, “Pay Your Taxes Now” whether you intend on paying with your bank account or a credit card
Are individual tax payments deductible? Click here to find out what may be a hard truth
Paying by bank account
Click “Make a Payment”
Choose the "Reason for Payment". More often than not, this will be "Tax Return or Notice" or "Estimated Taxes"
Next, select "1040, 1040A, 1040EZ" for "Apply Payment To"
Enter the tax period for this payment
The next page is verifying your identity, so select the most recent tax year as the "Tax Year for Verification"
Enter in the required information as it appears exactly on the selected tax year for verification
Accept the Privacy Act notice
Once they have verified your identity, you will be taken to another screen to enter in your payment information
Paying by credit card
This option will take you to a third party website that processes credit card transactions on behalf of the government.
Indicate whether the payment is an individual or a business tax payment
Business tax payments are for C Corporation estimated tax payments, payroll tax payments, and some partnership tax payments.
Individual tax payments will give you 4 categories:
Pay your 1040 Current Tax Return 2020
Pay your 1040 Prior Tax Return Years
Pay your 1040 Installment Agreement
Pay Your Tax Extension (Form 4868)
Enter your taxpayer information such as your name, social security number, date of birth, and address.
Enter your contact information
Enter in your payment amount
Not sure how much to pay? Reach out and let us know!
Review your information has been entered correctly. You’d hate to pay tax for someone else!
Submit payment and KEEP YOUR RECEIPT.