Estimated taxes normally have to paid if you do not withhold taxes via your employer or if the amount of income tax being withheld from your salary, pension, or other income is insufficient. Estimated taxes are generally paid by small business’, self-employed workers with variable sources of income/expenses or those that have been notified by the IRS to pay it. Below is the table which shows when estimated tax payments are generally due, with specific dates for 2011 and likely dates for 2012.
Key points to remember with estimated taxes:
- Installments for a given period are made over subsequent periods, with the first installment due in the first taxable period’s due date. E.g. if you have income on which you must pay estimated taxes between April 1 and May 31, you must make your first (of three, say) installment payment by April 15, with subsequent ones due on Sept 15 and Jan 15 next year.
- The date of the U.S postmark is considered the date of payment. If the due date falls on a weekemd or public holiday the payment will be considered on time if you make on the next business day.
- Penalties and late payments. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. Even if you expect a refund when you file your annual tax return, you need to pay your estimated taxes quarterly or face an IRS penalty.
- Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. This form is for those expected to pay taxes of $1,000 or more and are filing as a sole proprietor, partner, S corporation shareholder and/or a self-employed individual. Corporations use different forms. Given tax payers have to figure/estimate taxes due on their own, based on IRS guidelines, it is worthwhile engaging the services of a good accountant to help with filing your quarterly taxes.
- You do not have to pay estimated tax for the current year if: 1) You had no tax liability for the prior year; AND 2) You were a U.S. citizen or resident for the whole year; AND 3) Your prior tax year covered a 12 month period.
See IRS Publication 505 for more details on estimated taxes or leave a question in the comments section below.