| Who is Subject to Paying Quarterly? | | | | taxes are due if the withheld taxes cover more than |
| Everyone, in essence. Individuals whose tax obligation | | | | 90% of the total tax bill for that year - or - if the tax |
| for any year exceeds $1000 need to make payments | | | | withheld totals more than your entire tax bill from the |
| on those taxes due throughout the year. Most of us | | | | previous year. |
| do without realizing it. If you are an employee at a | | | | This means if you (or your spouse if married filing |
| regular job, most likely, those taxes are withheld from | | | | jointly) is an employee at another job besides the |
| your paycheck by your employer. If, however, you are | | | | business, just make sure to have enough tax withheld |
| an independent contractor, own your own business, or | | | | from each check to cover taxes due from your |
| make other money on the side, you are responsible | | | | business income, too. If so, you can forget about |
| for making those payments. | | | | making estimated, quarterly payments. In essence, that |
| When and What to PayFour times per year, you must | | | | withholding is paying your quarterly business payments, |
| pay estimated taxes on your income and | | | | as well as the taxes due on the other earned income. |
| self-employment tax using Form 1040ES. Due dates | | | | IRS Publication 919 will help you compare the total tax |
| for these payments are: April 15, June 15, September | | | | to be withheld during the year with the tax you can |
| 15, and January 15. You are supposed to estimate the | | | | expect to figure on your return. It will also help you |
| amount of income you will earn and subsequent taxes | | | | determine how much additional withholding you may |
| you will owe for the entire year. Self-employment tax | | | | need each payday from your regular job in order to |
| must be taken into consideration when figuring | | | | avoid owing taxes and penalties for not filing quarterly. |
| estimated payments. You need to then pay 25% of | | | | To add to the amount withheld from your regular job, |
| this amount each quarter. | | | | you will need to fill out a new W-4 for your employer. |
| Tax software generally figures your estimated taxes | | | | Form 1040ES |
| based on what you did in previous years. It can also | | | | Form 1040ES is a simple payment voucher where you |
| prepare estimated forms for you. | | | | list your names, social security numbers, and address. |
| If you are not liable for paying estimated taxes prior to | | | | The only other space on the form is to write in the |
| a given due date, but become liable before the next | | | | amount you are paying. Do not forget to include a |
| due date, file for the quarter you become liable, but | | | | check. There is a worksheet to help you figure your |
| increase your percentage paid. | | | | estimated tax in the instruction booklet for 1040ES. |
| Example: | | | | If you earn under $150,000, quarterly payments must |
| Dan has a regular job through which taxes are | | | | equal 90% of your final income tax bill or at least 100% |
| withheld from each paycheck. He begins selling online. | | | | of the tax bill from last year (amount due before |
| During the first part of the year, he is having enough | | | | deducting what had already been paid - line 63 of |
| taxes already withheld to cover his online income, as | | | | 1040). |
| well as his regular income. | | | | If you earn over $150,000, you must pay at least 110% |
| In July, however, his online sales spike significantly. He | | | | of the tax bill from last year, spread out quarterly, or |
| realizes the amount withheld from his regular paycheck | | | | risk and under-payment penalty. |
| will no longer cover his total tax liability. He may file a | | | | Overpayment |
| Form 1040ES by September 15, paying enough to | | | | If you over pay your estimated taxes and expect a |
| equal a total of 75% (when combined with his regular | | | | refund, you may elect to apply it to the estimated |
| withholdings) of his estimated tax due without realizing | | | | payments for next year. |
| penalties (75% because it is the third quarter). | | | | Underpayment |
| Dan may also be able to increase the amount he has | | | | You could receive a tax penalty if you under pay or |
| withheld from his regular paycheck, instead of having | | | | miss a deadline. If you are late, you could also end up |
| to file estimated payments. | | | | paying interest on what you owe. Your state may |
| If you (and/or your spouse if married filing jointly) has | | | | require quarterly payments, as well. |
| income tax withheld from a paycheck, no estimated | | | | |