How and when to Pay Estimated Taxes to the IRS

How and when to Pay Estimated Taxes to the IRS

The coronavirus has affected all aspects of our lives, including our tax obligations. In addition to extending the 2019 annual fee filing deadline, the estimated quarterly fees' first payment was also extended. But these are peculiar times, and the government recognizes that people and businesses dealing with coronavirus need help not only to register but also to pay.


What are the Estimated Taxes?

Income earned that is not subject to federal withholding tax during the year is taxable, requiring taxpayers to pay estimated taxes every quarter. One way to solve this problem for employees is to increase the value they retain in their regular jobs.

The following are instances of income that are not normally subject to withholding tax: Alimony, Capital gains, Dividends, Gig economy earnings, Interest, Prizes, Rents, Self-employment earnings, Social Security benefits in some cases and Unemployment compensation are applied for underpayments and late payments. 

Self-employed workers benefit from an additional reduction in refundable taxes, thanks to the Family Coronavirus Response Act, adopted on March 18. The law allows workers to take paid time off if they are in quarantine or show symptoms of COVID-19 or if they have to stay home to care for a child whose school or daycare is closed.

According to an IRS press release, "equivalent amounts of health and sickness credits are available for self-employed workers under similar circumstances. These credits will be claimed on the tax return and will reduce the estimated tax payments." 

If this date falls on a weekend or holiday, the 1040-ES submission deadline is extended to the next business day.

For 2020, the first and second estimated tax payments were on July 15, while the other deadlines still apply.

How To Determine If You Owe The Estimated Taxes

If you expect to owe more than $ 1,000 in tax after calculating your withholding and refunds for the year, the IRS says you owe the estimated tax. Please note that special rules apply to farmers and fishers.

The IRS provides Safe Harbor guidelines to help you avoid payment penalties. For example, you will have no problem paying 90% of your tax bill due in 2020. If you do not have an idea of how much you will earn this year, you can pay 100% of your 2019 tax bill to protect yourself from paying fines and interest.

The Safe harbor provisions are useful, but if the coronavirus affected your business and you expect to owe fewer taxes in 2020 than in 2019, you should make a tax projection on the 2020 income to determine what your quarterly estimates should be.


How to Determine What Taxes You Owe

Form 1040-ES helps you calculate estimated taxes and provide proof to send along with estimated tax amounts if you choose to pay by check or money order. Your tax preparation software or your accountant can do your calculations on your behalf. To determine how much you owe, check the income reported and the deductions made on the previous year's federal income tax return to see if they will be comparable.

High-income earners, defined as those who earn $ 150,000 or more if they are single or married filing jointly ($ 75,000 if they are married, filing separately), must pay 110% of last year's tax liability to comply with the Safe Harbor.

Example: If last year's tax bill were $40,000, you would pay $ 44,000 (10% more) in estimated and withheld taxes this year to avoid paying unpaid fines.


How to Pay the Estimated Tax

Ideally, the IRS would like to get the estimated fees in four equal installments throughout the year, but some are seasonal. For example, a landscaping company earns most of its money during the warmer months of the year. It is advised that you pay the tax as you earn. In this case, you have to follow the annual payment method, which allows you to pay when you have money. Instructions are available in IRS Publication 505, Withholding and Estimated tax, and Form 2210.

After determining how much to pay, the IRS will accept your money in several ways. Instructions on payment options are available at They include direct payment from your checking or savings account, payment by debit or credit card, IRS2Go mobile app, same-day wire via bank, electronic federal tax payments, and cash at a participating store.

If you are paying online, which can be done at any time of the year, be sure to select the fiscal year and the type of tax or form associated with the payment. If paying by check or money order, send payment and a receipt of Form 1040-ES to the address listed for your state on the form. Make the check payable to the US Treasury and, in the Notes section in the lower-left corner, list the fiscal year and "estimated taxes."

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