The federal tax system is pay-as-you-go. If you are an employee, your employer should withhold income tax from each paycheck and deposit it with the IRS on your behalf.
But what if you have income that is not subject to withholding… such as self-employment income of rental income? In this case, you will need to make “quarterly” estimated tax payments during the year yourself. Why is “quarterly” in quotes? Because the due dates range from 2 months to 4 months apart. They are April 15, June 15, September 15 and January 15.
What if your estimate is off and you find your actual tax for the year is more than you paid in during the year? If this happens, you could end up owing a penalty. The IRS has a “safe harbor” rule that says you will generally not be penalized as long as one of the following is true:
- You owe less than $1,000 in tax for the year after deducting tax withholding, refundable credits and estimated payments.
- The total of your tax withholding, refundable credits and estimated payments is at least 90% of your total tax for the year.
- The total of your tax withholding, refundable credits and estimated payments is at least 100% of your total tax for the previous year. For high-income taxpayers, this threshold is 110%.
Where do you send the payments? Making a payment online is easy, but there are other options as well. See https://www.irs.gov/payments for your payment options.
If you are required to make estimated payments, do yourself a favor and keep up with them during the year. This will help you avoid IRS penalties, interest and frustration.