9/7/2021
Candace J. Dixon
September 15, 2021 is the deadline for third quarter estimated tax payments. This applies to people who are self-employed as well as some investors, retirees and those who may not normally have taxes withheld from their paycheck by their employers. Estimated tax is the method used to pay tax on income that is not subject to withholding. Also, if you do not elect voluntary withholding, you should make estimated tax payments on other taxable income, such as unemployment compensation and the taxable part of your social security benefits.
The Pay Tab on the front page of the IRS website has complete tax payment information, how and when to pay, payment options and more.
Who Should Make Estimated Quarterly Tax Payments
The U.S. tax system operates on a pay-as-you-go basis, meaning you must pay most of your tax during the year as you earn or receive income. Individuals not subject to withholding may need to make quarterly estimated tax payments.
You should typically make quarterly estimated tax payments for 2021 if both of the following apply:
You expect to owe at least $1,000 in tax for 2021 after subtracting your withholding and tax credits.
You expect your withholding and tax credits to be less than the smaller of:
90% of the tax to be shown on your 2021 tax return or
100% of the tax shown on your 2020 tax return. Your 2020 tax return must cover all 12 months.
If your adjusted gross income (AGI) is more than $150,000 ($75,000 if married filing separately) you are required to pre-pay 90% of the tax for the current year or 110% of the tax shown of the return for the prior year, whichever is less.
People with income not subject to withholding, including interest, dividends, capital gains, alimony, cryptocurrency and rental income, normally make estimated tax payments. People who are in business for themselves will usually have to pay their tax this way. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.
Special rules apply to some groups, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year. Publication 505, Tax Withholding and Estimated Tax, provides more information about these special estimated tax rules.
Qualifying farmers and fishermen are required to pre-pay only two-thirds (66.67%) of their tax, or 100% of the tax shown on the return for the prior year, whichever is less. Use Form 2210-F, Underpayment of Estimated Tax by Farmers and Fisherman to see if you owe a penalty for underpaying your estimated tax.
Deadline Dates for Disaster Victims:
Michigan - Victims of severe storms, flooding, and tornadoes that began June 25, 2021 that reside or have a business in Washtenaw and Wayne counties: November 1, 2021
California - Victims of wildfires that began July 14, 2021 that reside or have a business in Lassen, Nevada, Placer, and Plumas counties: November 15, 2021
Tennessee - Victims of Severe Storms and Flooding that occurred on August 21, 2021 that reside or have a business in Dickson, Hickman, Houston, and Humphreys counties: January 3, 2022
Louisiana - Victims of Hurricane Ida that began on August 26 that reside or have a business in the entire state of Louisiana and in impacted localities designated by FEMA in neighboring and other states: January 3, 2022 (The current list of eligible localities is available on the disaster relief page on the IRS website. Also, see Help for Victims of Hurricane Ida)
See the tax year 2021 Publication 505, Tax Withholding and Estimated Tax, and Electing To Apply a 2020 Return Overpayment From a May 17 Payment with Extension Request to 2021 Estimated Taxes for recent developments.
Penalties for Underpayment of Taxes
If you underpaid your taxes, you may have to pay a penalty whether you paid through withholding or through estimated tax payments. A penalty may apply for late estimated tax payments even if you are due a refund when you file your taxes. The Underpayment of Estimated Tax by Individuals Penalty applies when you don’t pay estimated tax accurately or on time as an individual.
The IRS sends notices for underpayment of estimated taxes. CP30 Notices are sent to individuals, estates, and trusts because the IRS charged a penalty for not pre-paying enough tax either by having taxes withheld from income, or by making timely estimated tax payments.
CP173 Notices are sent to corporations because the IRS assessed a penalty for failure to make sufficient timely estimated tax payments when their records show the corporation didn't prepay enough tax through estimated tax payments, or didn't make them on time.
Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts
Use Form 2210 to see if you owe a penalty for underpaying your estimated tax and to figure the amount of the penalty.
The IRS may waive the penalty if you underpaid because of unusual circumstances and not willful neglect. Examples include:
Casualty, disaster or other unusual situations
You retired after reaching age 62 during a tax year when estimated tax payments applied
You became disabled during a tax year when estimated tax payments applied
Use Form 2210 to request a waiver of the penalty.
How to Calculate Estimated Tax Payments
You must figure your expected adjusted gross income (AGI), taxable income, taxes, deductions and credits for the year to calculate your estimated tax. When figuring 2021 estimated tax, it may be helpful to use income, deductions and credits for 2020 as a starting point. Use the 2020 federal tax return as a guide.
Use Form 1040-ES to figure and pay your estimated tax. The instructions for 1040-ES, Estimated Tax for Individuals include a worksheet to help you figure your estimated tax. Keep the worksheet for your records.
If you are a nonresident alien, use Form 1040-ES (NR), U.S. Estimated Tax for Nonresident Alien Individuals to figure estimated tax.
You must make adjustments both for changes in your own situation and for recent changes in the tax law. Tax provisions in the American Rescue Plan of 2021 may impact an your situation. For more information, see Publication 505, Tax Withholding and Estimated Tax.
The Tax Withholding Estimator on the IRS website offers a step-by-step method to have the correct amount of tax withheld from wages and pensions. It also has instructions on how to file a new Form W-4, Employee's Withholding Certificate to give to your employer to adjust the amount withheld each payday. It's a good idea to fill out a new W-4 every year, and when your personal or financial situation changes.
Estates or trusts use Form 1041-ES, Estimated Income Tax for Estates and Trusts to figure and pay estimated taxes. Estimated tax is the amount of tax an estate or trust expects to owe for the year after subtracting the amount of any tax withheld and the amount of any credits.
Corporations Use Form 1120-W, Estimated Tax for Corporations. Corporations must typically make estimated tax payments if they expect their estimated tax (income tax less credits) to be $500 or more. Corporations use Form 1120-W to estimate their tax liability and figure the amount of their estimated tax payments.
S corporations must make estimated tax payments for certain taxes. S corporations should see the Instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation, to figure their estimated tax payments.
Tax-exempt corporations, tax-exempt trusts, and domestic private foundations must make estimated tax payments for certain taxes. Tax-exempt corporations, tax-exempt trusts, and domestic private foundations use Form 990-W, Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations to figure their estimated tax liability. These organizations should see the instructions for their particular tax return to figure the amount of their estimated tax payments.
The Next Estimated Tax Payment Due Date
The fourth and final 2021 estimated tax payment is due January 17, 2022.
Resources:
IRS: Paying Your Taxes page
Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts
Form 2220, Underpayment of Estimated Tax by Corporations
IRS: Unemployment compensation is taxable; have tax withheld now and avoid a tax-time surprise