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.
There are two ways to pay tax:
- Withholding from your pay, your pension or certain government payments, such as Social Security.
- Making quarterly estimated tax payments during the year.
This will help you avoid a surprise tax bill when you file your return. You can also avoid interest or a penalty for paying too little tax during the year. Ordinarily, you can avoid this Estimated Tax penalty by paying at least 90 percent of your tax during the year.
Having enough tax withheld or making quarterly estimated tax payments during the year can help you avoid problems at tax time.
The IRS urges you to check your options to avoid penalties for underpayment of estimated tax. This is especially important if you are in the gig economy, have more than one job or had major changes in your life, like a recent marriage or a new child.
When to and how to change your withholding or pay estimated taxes
If you want to avoid a tax bill, check your withholding often and adjust it when your situation changes. Changes in your life, such as marriage, divorce, working a second job, running a side business, or receiving any other income without withholding can affect the amount of tax you owe. Some income is not subject to withholding but if you work as an employee, you may choose to have more tax withheld from your paycheck. This may be a convenient option if you receive income from self-employment, the gig economy or some rental activities. To increase your withholding fill out a new Form W-4 and give it to your employer. The Tax Withholding Estimator is a helpful tool.
You may also make estimated tax payments if the withholding from your salary, pension or other income doesn’t cover your income tax for the year.
Why and how you should make estimated tax payments
If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments. You make your estimated payments based on the income you expect to earn and any credits you expect to receive in the year. You can use your prior year tax return as a guide and Form 1040-ES, Estimated Tax for Individuals has a worksheet to help you figure your estimated payments.
You can use estimated tax payments to pay both income tax and self-employment tax (Social Security and Medicare).
Estimated tax payments are generally due:
- April 15 for income earned January 1 to March 31
- June 15 for income earned April 1 to May 31
- September 15 for income earned June 1 to August 31
- January 15 of the following year for income earned September 1 to December 31
Note: If these due dates fall on a Saturday, Sunday or legal holiday, the payments are due the next business day.
You may send estimated tax payments with Form 1040-ES. Better yet; you can create or access your IRS online account to view your balance owed, make and view payments (including estimated payments), create payment plans, and view tax records including downloadable transcripts and key data from your most recently filed tax return. Pay online, by phone or from your mobile device using the IRS2Go app. Visit options for making payments to view all the options.
Other information you might find useful includes:
- Form 1040-ES, Estimated Tax for Individuals
- Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship)
- Form 1041, U.S. Income Tax Return for Estates and Trusts
- Form 1099-G, Certain Government Payments
- Form 1099-K, Merchant Card and Third Party Network Payments
- Publication 3, Armed Forces’ Tax Guide
- Publication 17, Your Federal Income Tax
- Publication 225, Farmer’s Tax Guide
- Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C)
- Publication 505, Tax Withholding and Estimated Tax
- Publication 525, Taxable and Nontaxable Income
- Publication 550, Investment Income and Expenses
- Publication 915, Social Security and Equivalent Railroad Retirement Benefits
- Publication 4190, Life Cycle Series: Tax Guide for the Retiree PDF
- Publication 4929, Is Your Refund or Tax Bill Too Big PDF
- Topic 409, Capital gains and losses
- Topic 416, Farming and fishing income
- Topic 419, Gambling income and losses
- Paying yourself
- Manage taxes for your gig work
