Candace J. Dixon
The deadline for making a payment for the fourth quarter of 2021 is Tuesday, January 18, 2022. If you paid too little tax during 2021, you can still avoid a surprise tax bill and possible penalty by making a quarterly estimated tax payment now to the Internal Revenue Service.
Income taxes are pay-as-you-go, meaning you have to pay most of your tax during the year as income is earned or received. You can either have it withheld from paychecks, pension payments, and government payments like Social Security or unemployment compensation, or you can make quarterly estimated tax payments to the IRS. Self-employed people and investors often pay their tax this way.
If you didn't make your required quarterly estimated tax payments earlier in the year, making a payment soon to cover the missed ones will usually lessen or even eliminate possible penalties. The penalty calculation considers the date the payment was made, so even making a payment now instead of waiting until the April filing deadline can help.
Who needs to make estimated tax payments
If you owed tax when you filed your 2020 tax return, you may find yourself in the same situation when you file your 2021 return, especially if you failed to increase your withholding during 2021. People in this situation often include those who itemized in the past but are now taking the standard deduction; two wage-earner households; employees with non-wage sources of income; and people with complex tax situations.
You may also need to make an estimated tax payment if you received advance payments of the Child Tax Credit during 2021 but don't expect to qualify for the credit when you file your 2021 return,
Reminders:
Most income is taxable, including wages; interest; other investment income including income related to virtual currencies; refund interest; and income from the gig economy.
Unemployment compensation is fully taxable in 2021.
Various financial transactions such as year-end and holiday bonuses; stock dividends; capital gain distributions from mutual funds; and stocks, bonds, virtual currency, real estate or other property sold at a profit can have an unexpected tax impact, especially late in the year.
The IRS Tax Withholding Estimator can help you determine if you need to make an estimated tax payment, or you can use the worksheet included with estimated tax Form 1040-ES online. Publication 505 - Tax Withholding and Estimated Tax has details, worksheets and examples that can be helpful if you have dividend or capital gain income, owe alternative minimum tax or self-employment tax, or are in other special situations.
How to make estimated tax payments
The fastest and easiest way to make estimated tax payments is electronically using IRS Direct Pay. You can schedule a payment in advance for the January deadline. You can now also make a payment through your IRS Online Account. You'll see your payment history, any pending or recent payments, and other useful tax information. The IRS does not charge a fee for these services, and using them makes sure that your payment gets credited promptly.
For information on other payment options, visit IRS.gov/payments.