Have you Googled the commonly asked question, “How do I know if I need to pay quarterly taxes?” In short, if you have untaxed income or you’re not having enough withheld from your paycheck, you need to pay estimated quarterly taxes.
But there is a lot more to that statement that taxpayers need to understand in order to pay estimated quarterly taxes correctly. Let’s dive deeper and review who exactly needs to pay quarterly taxes, how to pay them, and the penalty for unpaid taxes.
Who Needs to Pay Quarterly Taxes?
Quarterly taxes must be paid by the self employed and those who aren't having enough withheld. Let’s talk in greater depth about each of these options.
Independent contractors, freelancers, and people with side gigs are prime candidates for estimated quarterly taxes because there’s no tax automatically withheld on their income. These individuals should plan on setting aside 25%-30% of their income to pay for taxes.
People who aren’t having enough withheld
The IRS says you need to pay estimated quarterly taxes if you expect:
- You’ll owe at least $1,000 in federal income taxes this year, even after accounting for your withholding and refundable credits (such as the earned income tax credit), and
- Your withholding and refundable credits will cover less than 90% of your tax liability for this year or 100% of your liability last year, whichever is smaller. (The threshold is 110% if your adjusted gross income last year was more than $150,000 for married couples filing jointly or $75,000 for singles.)
This can also include landlords and investors who pay taxes. Individuals with rental income and/or investments might need to pay estimated quarterly taxes even if their employers withhold taxes from their paychecks. If the rental or investment income isn’t calculated into their withholding amount, there's the possibility of coming up short and having to pay an estimated tax penalty.
How to Pay Quarterly Taxes
To calculate an estimate of how much you owe, visit the IRS’s tax withholding estimator. There are several options to pay your estimated quarterly tax payment: by mail, online, or in person.
- Using the IRS Form 1040-ES, you can send a check for your estimated tax payments in the mail.
- You can pay your quarterly taxes online using the IRS’s Direct Pay system or the U.S. Treasury’s Electronic Federal Tax Payment System. Paying with a credit card carries a fee of around 2%.
- At certain IRS retail partners, you can pay in cash.
For those wanting the answer to “when are quarterly taxes due?” Here are the due dates for your estimated quarterly tax payments in 2021:
These dates don’t coincide with regular calendar quarters, so plan ahead.
You can also make payments more often if you’d like. For some, it may be easier paying 12 smaller payments a year than four larger payments. For example, if you owe $1,200 for the year, you can pay $100 a month rather than $300 four times a year. This can make paying a bit easier, especially if the numbers are bigger.
Another tip: the January payment doesn’t have to be filed by the mid-January deadline if you file your tax return and pay what you owe by the end of that month.
What is the Penalty for Not Paying Quarterly Taxes?
You might also be wondering, “What is the penalty for not paying self employment taxes quarterly?” Or any quarterly taxes for that matter. Although minds might wonder about this topic, it’s never a good idea to avoid paying your taxes. The penalty for not paying quarterly taxes can be pricey. Interest is charged on the amount you underpay from the day your quarterly payment is due until the day it's paid. The underpayment penalty rate is the federal short-term rate plus 3% and is announced quarterly.
The IRS can charge you a penalty for late or inadequate payments even if you’re due a refund when you file your tax return.
- You were a victim of a casualty, disaster, or other unusual circumstance,
- You’re at least 62, retired, or became disabled this year or last year, and your underpayment was due to “reasonable cause” rather than “willful neglect”
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