8/12/2021
Candace J. Dixon
Whether you are self-employed, a small business owner, or a wage earner, you should look into whether you should make quarterly estimated tax payments this year to help avoid an unexpected tax bill, and possibly a penalty, when you file your taxes next year.
While people who earn a paycheck usually have their employer withhold tax from their checks to cover taxes they owe, there is some income that is not subject to withholding; 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.
Here is more information about estimated tax payments:
You typically need to make estimated tax payments if you expect to owe $1,000 or more when you file your 2021 tax return, after adjusting for any withholding.
Corporations must generally make estimated tax payments if they expect to owe $500 or more on their 2021 tax return.
Form 1040-ES, Estimated Tax for Individuals and Form 1120-W, Estimated Tax for Corporations provide details on how to figure estimated tax payments.
You can check your withholding using the IRS' Tax Withholding Estimator. If the estimator suggests a change, you can then submit a new Form W-4 to your employer.
Aside from business owners and self-employed individuals, others who need to make estimated tax payments include sole proprietors, partners, S corporation shareholders, and often people working in the gig economy (also called the sharing economy).
The final two deadlines for paying 2021 estimated payments are September 15, 2021 and January 15, 2022.
Options for paying estimated taxes include paying by credit or debit card; using Direct Pay to make payments from your bank account; mailing a check or money order to the IRS; paying cash at an IRS retail partner; or using the Electronic Federal Tax Payment System.
If you pay too little tax through withholding, estimated tax payments, or a combination, you may owe a penalty. The penalty may apply if your estimated tax payments are late or even if you are due a refund. Use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, or Form 2220, Underpayment of Estimated Tax by Corporations, to see if you owe a penalty for underpaying your estimated tax.
You can pay other taxes through estimated tax payments aside from income tax, including self-employment tax and the alternative minimum tax.
For recent developments, see tax year 2021 Publication 505, Tax Withholding and Estimated Tax.
Resources: Estimated Taxes