You may be required to make estimated tax payments if you don’t have enough federal tax withheld from your paychecks or you receive interest, dividends, self-employment, capital gains or other income. Here are the applicable rules for paying estimated tax without triggering the penalty for underpayment.
When are the payments due?
Individuals must pay 25% of a “required annual payment” by April 15, June 15, September 15 and January 15 of the following year to avoid an underpayment penalty. If one of those dates falls on a weekend or holiday, the payment is due on the next business day.
The third installment for 2023 is due on Friday, September 15. Payments are made using Form 1040-ES and may be made electronically or on paper.
How much should you pay?
The required annual payment for most individuals is the lower of 90% of the tax shown on the current year's return or 100% of the tax shown on the return for the previous year. However, if the adjusted gross income on your previous year's return was more than $150,000 ($75,000 if you're 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.
If the bulk of your income is wages, you can satisfy the payment requirements through the tax withheld by your employers. If you have other income and estimated tax payments are due, determine the required annual payment, divide that number by four and make four equal payments by the due dates (April 15, June 15, September 15 and January 15).
If your income is seasonal or you have a one-time payment, you may use the annualized income method to make smaller payments during part of the year. For example, if your income comes exclusively from a business operated in a resort area during June, July and August, you may not have to make an estimated payment or as large a payment for the first two installments as you make for the last two.
Do you have more questions?
Contact us with questions you may have about how the estimated tax rules apply to you or you want assistance in calculating payments.
The HoganTaylor Tax Practice
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
