What to do if You Haven't Been Paying Quarterly Taxes - Tax Professionals Member Article By Taxes Made EZ Inc
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What to do if You Haven't Been Paying Quarterly Taxes

What to do if You Haven't Been Paying Quarterly Taxes

Learn what to do when you have not been paying your estimated quarterly taxes, especially when you may not be able to pay all your owed taxes at once.

When it comes to paying federal taxes, W-2 employees have it easy. You will not need to make estimated tax payments if you have set up your withholding correctly and have no other income.

Your employer deducts federal tax from your pay and submits it to the government on your behalf. Things are not easy for employees who earn extra income. Contractors and those who receive 1099s do not have it easy either.

Other types of income on which income tax is often not withheld include:

  • Capital gains

  • Dividends

  • Interest

  • Prize and Awards 

  • Self-employment income

You may have to make estimated quarterly tax payments if you do not qualify as a W-2 employee with no other income group.

Unfortunately, most people don't realize they must make estimated quarterly tax payments until it's too late.

So what do you do if you're not making your estimated quarterly tax payments, but you should?

You should try to make payments as quickly as possible.

But there are other things to consider - here's what you need to know.


Who must pay the Estimated Quarterly Taxes

The Internal Revenue Service says you must make estimated tax payments for the current tax year if both of the conditions below apply to your situation:

  • After subtracting refundable prepayment credits, you are expected to owe at least $1,000 in federal tax for the current tax year.

  • You expect your refundable deductions and credits to be less than 90% of the tax shown in the current year's tax return or 100% of the tax shown in the previous year's tax return.

These are known as "safe harbor rules." If you follow the rules above, you don't have to pay the penalty.

Of course, there are exceptions.

In particular, there are special rules for:

  • Certain high-income taxpayers

  • Certain household employers

  • Farmers and fishermen

  • Non-resident aliens

Most people do not fit into the categories of household employers, farmers, fishers, or non-resident aliens.

However, a large portion of the population can be considered high-income taxpayers.

If your adjusted gross income (AGI) is over $150,000, you will need to pay 110% tax on the previous year's tax return, instead of the 100% listed above, to avoid a penalty.


When quarterly estimated taxes are due

Estimated quarterly tax payments are due four (4) times a year.

Payments are generally due on:

  • April 15th for the payment period from January 1st to March 31st

  • June 15th for the payment period from April 1st to May 31st

  • September 15th for the payment period from June 1st to August 31st

  • January 15th of the following year for the payment period from September 1st to December 31st

That said, sometimes the 15th falls on a weekend or a holiday.

In such cases:

Payment is made the next day, except on weekends or public holidays.


Penalties for nonpayment

Calculating the penalty for not making the estimated tax payment or underpaid taxes is complicated. You should probably avoid attempting it on your own.

For this reason, the IRS lets you leave the penalty blank.

If so, the IRS will calculate your penalty and send you an invoice.

You can calculate the penalty yourself.

If you choose to calculate it yourself, you will calculate the penalty on Form 2210, Underpayment of Estimated Taxes by Individuals, Estates, and Trusts.


Penalties may be waived.

The IRS may renounce the estimated tax penalty for nonpayment in certain situations. The most common reason the penalty can be waived or reduced is if you receive uneven income throughout the year.

If so, you can annualize your income and make unequal payments.

You can submit Form 2210 to see if this avoids or reduces the penalty based on your situation.

On the other hand: the penalty may be waived if the failure to pay estimated taxes is caused by an accident, disaster, or other unusual circumstances, and it is unfair to impose the penalty.

The penalty can also be waived even if:

  • You retired after age 62 or

  • You were disabled in the tax year for which estimated taxes were required or in the previous tax year and

  • Underpayment is due to reasonable cause and not willful negligence


Estimate your tax payment as soon as possible

Depending on how estimated tax penalties are calculated – which is the number of days outstanding – it makes sense to make estimated tax payments as soon as you realize you owe them.

Each day you delay making an estimated tax payment is another day the penalty applies, and that's more penalty for you.


Cannot pay in full

What if I don't have the full amount to pay? If so, pay as much as you can today and make another payment as soon as you can afford it.

Although the IRS only requires you to pay your estimated income tax quarterly, you can make payments more often if you wish.

This can help if you're having trouble keeping the money you've set aside for your estimated quarterly tax payments.

You can make payments bi-weekly or once a month if that's easier for you.

Note: Payments must be made at least as often as required by the IRS. These payments must be equal to the minimum due for the quarter preceding the deadline to avoid penalties.


How estimated taxes are calculated

If you need to know your estimated quarterly tax payment, you will need to complete the Estimated Tax Worksheet that is part of the Form 1040-ES, Estimated Tax Package.

This form asks you to enter information such as your expected AGI for the tax year and the deductions you will be entitled to.

Based on the calculations, you will determine the tax due based on the current year's tax rate schedules.

You will then adjust alternative minimum tax, credits, self-employment tax, and other taxes to arrive at your estimated total tax.

You will also calculate the estimated minimum tax you must pay to avoid a penalty.

If you go with this option, you will not be fined at tax time as long as your calculations are correct. You still owe the tax you owe but haven't paid it yet when you file your tax return.


How to Pay Estimated Quarterly Taxes

Once you have calculated how much you need to pay, you must make the payments. You can do this in several ways.

If you are making estimated tax payments shortly, we recommend that you sign up for the EFTPS (Electronic Federal Tax Payment System).

This system lets you make estimated tax payments through the EFTPS website or phone directly from your bank account.

If you like to do things the old-fashioned way, you can fill out an Estimated Earnings Form 1040-ES for the correct quarter and mail it in with a check.

Other options include:

  • IRS2Go mobile app

  • Online payment agreements

  • Pay by cash

  • Pay by debit or credit card (with a reduced rate)

  • Pay by phone

  • Through a tax professional using an electronic funds withdrawal

  • Use IRS Direct Pay to make payments from your checking or savings account

You can learn more about these payment methods and where to find them in the Form 1040-ES instructions in How to Pay a Tax Estimate.


Set Reminders

Paying your estimated taxes quarterly can be a hassle. It can also be costly if you forget them or avoid paying them.

To make your life easier, set a reminder to calculate and pay your estimated taxes a few weeks before each due date.

This would mean setting reminders for January 1st, April 1st, June 1st, and September 1st each year.

This will give you enough time to do the necessary calculations.

Therefore, making a payment before the due date is enough to avoid paying penalties.


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