Do You Need to File Quarterly Tax Payments?
With so much attention on Tax Day, other tax deadlines are easily overlooked. Believe it or not, your income tax is a pay-as-you-go system for qualifying individuals or businesses. In fact, if you are a sole proprietor or have other types of taxable income such as capital gain, you may need to file quarterly estimated payments in order to avoid an IRS penalty.
Who Should Pay Quarterly Tax Payments?
“If you are filing as a sole proprietor, partner, S-corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return,” notes the IRS.
The general rule, codified in §6654, is that you need to make estimated tax payments and file Form 1040-ES: Estimated Tax for Individuals if both of the following apply:
- Your estimated tax due is $1,000 or more.
- The total amount of your withholding and refundable credits will be less than the smaller of:
- 90 percent of your current year’s tax liability
- 100 percent of your previous year’s tax liability (110% if your 2015 AGI was $150,000 or more; $75,000 for married taxpayers filing separate returns)
An exception applies to taxpayers who earn at least 66 2/3 percent of annual gross income from farming or fishing. Farmers and fisherman are only required to pay one estimated payment prior to the filing deadline. The estimated payment due date for farmers and fisherman is typically January 15 following the close of the taxable year.
Who SHOULDN’T Pay?
You do not have to pay quarterly estimated tax for the current year if you meet all of the following conditions:
- You had no tax liability for the prior year
- You were a U.S. citizen or resident for the whole year
- Your prior tax year covered a 12-month period
When Should You Pay?
If you meet the requirements for paying estimated tax every quarter, write down the following dates, as payments for tax year 2016 are due every quarter on these dates:
- April 15
- June 15
- September 15
- January 17
(NOTE: The dates below are for tax year 2016. The due dates are generally April 15, June 15, September 15, and January 15. However, if the due dates fall on a weekend or holiday, the due date is pushed to the next business day.)
How Do You Submit Your Quarterly Tax Payment to the IRS?
You have a few options for paying your quarterly taxes. They are as follows:
- When you submit your annual tax return, apply the refund to your taxes for the next quarter.
- Mail a check or money order with Form 1040-ES each quarter. Find out where to mail the information based on the state you reside in here.
- Visit eftps.govto use the Electronic Federal Tax Payment System. Here you can make payments weekly, quarterly, or monthly, and you can set up payments up to a year in advance.
- Enlist the help of a tax professional. For example, you can find an expert Tax Advisor at a Block Advisors location near you, schedule a meeting so the Advisor can review your situation, and then he or she can map out your estimated quarterly or yearly tax obligations based on your unique situation. Once a plan is put in place, the Advisor will file on your behalf, leaving you to what you’re most passionate about.
Note that you may be able to lower your quarterly payments or eliminate them altogether by increasing your withholding from wages or by requesting withholding from retirement distributions, social security, dividends, or other income that you receive on a regular basis.
What Happens if You Don’t Pay Quarterly Tax Payments But Should?
If you did not pay enough tax throughout the year, you may incur a penalty for the underpayment. The penalty is a complicated formula; it is imposed on the amount of underpayment for the number of days it remains unpaid, starting with the first quarter’s payment. Refer to Publication 505, Tax Withholding and Estimated Tax for additional insight.
Where Can You Turn To For Help?
Do you have additional questions? Block Advisors is here. We are available year-round to support the life changes that come your way. As life goes on, taxes become more complicated. While the number of people doing their own taxes is increasing, you must realize that life will throw you curve balls and you need to enlist the help of a professional to help you manage your tax and finances. This is true especially for those who need to pay quarterly tax payments.