Estimated taxes are due tomorrow. How to calculate them and where to pay

This story is part Taxes 2022CNET’s coverage of the best tax software and everything you need to file your return quickly, accurately and on time.

What is happening

Since contract workers do not have taxes withheld from their wages, the IRS requires estimated tax payments four times a year.

why is it important

It is important to pay estimated taxes to avoid tax penalties when filing your tax return.

And after

The next estimated due date is June 15, 2022.

If you have a traditional hourly or salaried job, your employer likely withholds taxes from every paycheck. But if you’re one of the millions of small business owners, freelancers, side hustlers and other self-employed taxpayers, there is no automatic withholding tax mechanism. But that doesn’t mean you won’t owe them spring tax season.

Anyone whose income is not taxed must pay estimated taxes throughout the year. This will minimize your financial burden on tax day and also help you avoid penalties from the IRS.

The estimated tax reporting process can be a bit complicated, but we can make it simple. Here’s everything you need to know to calculate your taxes and file your return on time.

What are the estimated taxes?

If you earn or receive income that isn’t subject to federal tax withholdings throughout the year — secondary income or income from rental property, for example — you’ll pay as you go. with estimated taxes. Estimated tax is a quarterly payment based on your earnings for the period. Essentially, Estimated Tax allows you to prepay a portion of your income tax every few months to avoid paying a lump sum on tax day.

Who has to pay the estimated taxes?

If you have completed the IRS Form W-4, which provides instructions to your employer on how much to deduct from each paycheck, you may not have to pay estimated taxes. If you’re not a salaried W-4 employee, however, you should probably keep estimated tax payments on your radar. According to the IRS, you must pay estimated taxes if you expect to earn at least $1,000 in 2021 and your type of employment falls into one of these categories:

  • Independent contractor or freelancer
  • sole proprietor
  • Partner
  • Shareholder of company S

There are other sources of income that fall under the estimated tax umbrella, including:

  • Dividends and interest earned on sales of investments
  • Royalties for previous work
  • Owner’s rental income
  • Pension
  • Unemployment benefits
  • Retirement benefits
  • Social security benefits, if you have other sources of income
  • Prizes and Awards

You may also have to pay estimated taxes as a full-time employee if your employer does not deduct enough from your salary. To update your W-4 with the correct withholding amount, use the IRS Withholding Tax Estimator Toolfill in a new one W-4, Employee Withholding Certificate form and give it to your employer.

Estimated taxes are due whether you are paid by direct deposit, check or digital payment services like PayPal, CashApp, Zelle or Venmo. Note: While you should already pays tax on that income, a new rule under the US rescue plan requires third-party payment networks to report payments of $600 or more to the IRS.

When are estimated taxes due?

Estimated taxes are paid quarterly, usually on April 15, June, September and January of the following year. A notable exception is when the 15th falls on a holiday or weekend. In these cases, you must file your return no later than the next business day.

The deadlines for the 2022 provisional taxes are shown in the table below.

Estimated tax deadlines

Earning period

Taxes due

Sept. 1 to Dec. 31 2021

January 18, 2022

Jan. 1 to Mar. 31, 2022

April 18, 2022

April 1 to May 31, 2022

June 15, 2022

June 1 to August 31, 2022

September 15, 2022

Sept. 1 to Dec. 31 2022

January 16, 2023

How to calculate estimated tax payments?

There are several ways to calculate your quarterly tax payments depending on your business model and your annual income.

  • If you earn a stable income, estimate the tax you will have to pay for the year and send a quarter to the IRS each quarter. For example, let’s say you will earn $80,000, which puts you in the 22% marginal tax bracket. You will owe $17,600 in federal taxes or $4,400 each quarter in 2022.
  • If your income varies throughout the year, you can estimate your tax burden based on your income and deductions from the previous quarter. Theirs Estimated Tax Worksheet can help you do the math.

If you have overestimated your earnings at the end of the year, you can complete a 1040-ES form to receive a refund or apply your overpayment to future quarterly taxes. If you underpaid, the form can help you calculate what you still owe.

How do I pay my estimated taxes?

When you file your estimated taxes, use the 1040-ES IRS tax form or the 1120-W form if you are filing as a company. You can complete the form manually using the included worksheets, or you can rely on your favorite tax software or a tax advisor to guide you through the process and get the job done. From there, you can pay your federal taxes by mail or online through the IRS website. You’ll also find a full list of accepted payment methods and options, including installment plans.

Do I also have to pay estimated state taxes?

It depends. If you live in one of the few US states with no income tax, your liability ends with the estimated federal taxes we discussed. However, if your state levies income taxes, you will make estimated tax payments using the same timelines as for federal taxes. Visit your state’s Department of Revenue website or consult your tax advisor or tax software service for more personalized information.

What are the penalties if I don’t pay my estimated taxes?

It’s a good idea to post a calendar reminder as the quarterly deadline approaches to avoid paying a late penalty. You may be charged a penalty if:

  • You forgot to pay the estimated taxes or your payment was less than 90% of the amount of taxes due.
  • In some cases you too much paid.

If you want to learn more about the estimated tax penalties and the conditions for an exemption, see the instructions in IRS Form 2210.

Can I avoid paying estimated taxes?

Probably not without incurring these penalties. Certain categories of workers – in particular those whose Income is exceptionally modest, inconsistent or seasonal – are exempt from having to make quarterly payments to Uncle Sam, however:

  • If your net income was $400 or less for the quarter, you don’t have to pay any estimated taxes, but you still have to file a tax return even if no taxes are due.
  • If you were a U.S. citizen or resident alien for all of 2020, your total tax was zero and you did not have to file a tax return
  • If your income fluctuates significantly throughout the year (if you run a seasonal business, for example), you may be able to reduce or eliminate your estimated tax payments through an annualized tax installment method. Refer to the IRS Worksheet 2-7 to see if you qualify.

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