Self-employed workers, freelancers, and gig economy participants are approaching quarterly estimated tax deadlines, distinct from the annual April 15 federal tax date. The Internal Revenue Service requires these payments for income not subject to standard withholding.
Payments are typically due on the 15th of January, April, June, and September. If a deadline falls on a weekend or holiday, the due date shifts to the next business day. Individuals can make payments more frequently, such as monthly or weekly, to manage budgets.
The requirement applies if a taxpayer expects to owe at least $1,000 after accounting for withholdings and refundable credits. Another condition involves withholdings covering less than 90% of the current year's tax liability or 100% of the prior year's liability, with a higher threshold of 110% for those with adjusted gross income over $150,000.
Income types potentially triggering this obligation include self-employment earnings, interest, dividends, capital gains, alimony, and prizes. Those with sufficient withholding from a salary or pension may be exempt.
To calculate payments, taxpayers can use IRS Form 1040-ES. Two primary methods exist: basing payments on the prior year's tax liability or on income earned during the specific payment period. Self-employed individuals must also account for the full 15.3% self-employment tax, covering both employee and employer shares of Social Security and Medicare contributions.
Several payment options are available, including online payments through IRS.gov, the Electronic Federal Tax Payment System, wire transfers, electronic funds transfers, phone payments, mailed checks or money orders, and cash payments at IRS retail partners.
Failure to make required quarterly payments results in interest charges and an underpayment penalty. This penalty is typically 0.5% of the unpaid tax per month, capped at 25% of the total owed. Exceptions may apply in cases of casualty, disaster, retirement after age 62, or disability.
Taxpayers unable to afford full payments are advised to pay what they can to reduce penalties. Filing a tax return on time remains crucial, as failure-to-file penalties are more severe than underpayment penalties. The IRS offers payment plans for those needing extensions or installment options.