The IRS is reminding all businesses to make their estimated tax payments each quarter. Optima Tax Relief explains who should make quarterly tax payments and how.
Businesses, self-employed individuals, and gig workers should either withhold their earnings or make estimated tax payments throughout the year. Estimated tax payments cover both income taxes and other taxes like self-employment tax and alternative minimum tax. Making these estimated tax payments is the best way to ensure that taxpayers are not charged penalties during tax time, either for not paying on time or not withholding enough.
Individuals who should pay estimated tax, especially if they expect to owe $1,000 in taxes at tax time, include:
- Sole proprietors
- Partners
- S-corporation shareholders
In addition, corporations that expect to owe $500 in taxes when they file their return should make estimate tax payments.
Taxpayers who are self-employed or gig workers who also receive wages from an employer can have more tax withheld from their paychecks to avoid making estimated tax payments. Before doing so, they should use the IRS Tax Withholding Estimator on the IRS website to calculate the amount of tax they should withhold. The estimator uses Adjusted gross income (AGI), taxable income, taxes, deductions, and credits to determine the estimated tax amount. Having last year’s tax return handy would be helpful in this process.
Once a taxpayer determines the correct amount of estimated tax to pay for the year, they should divide the total into payments throughout the year. Typically, the payments can be made weekly, bi-weekly, monthly, or quarterly, but some exceptions are made for those who paid enough tax by the end of the quarter. Making payments via the Online Account on the IRS website is the easiest way to pay.
