How to make estimated tax payments
Setting funds aside for taxes is great. But you need to actually pay your taxes throughout the year to avoid penalties.
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The US, and most states with income taxes, have “pay as you go” systems. They incentivize you to make payments throughout the year by imposing an underpayment penalty in some cases.
You can avoid this penalty if you owe less than $1,000 by the tax return deadline, or by paying in the smaller of 90% of the tax for the current year or 100% of the tax for the prior year. (When in doubt, pay in at least your total tax from last year’s tax return.)
IRS expects four estimated tax payments throughout the year:
- April 15
- June 15
- September 15
- January 15 If the 15th falls on a weekend of holiday, the payment is due the following business day.
Most states with an income tax also expect estimated payments throughout the year and conform to the IRS schedule.
But some states are weird, like California:
- 30% of tax due in April
- 40% in June
- 30% in January
The easiest and best way to make an estimated tax payment is online. IRS and every state offer this.
You can pay directly through the IRS website using your bank account to avoid credit card processing fees. States are similar.
Click here for a walkthrough video on paying the IRS.
Although, I have some clients who prefer paying by credit card because the rewards they receive seem to outweigh the processing charge. Do whatever works for you.
Whether paying by bank draft or credit card, paying online is faster and more secure than a check in the mail.
Note For those filing jointly, be sure to use the primary (first) spouse’s information when making estimated payments, even if the payment covers income generated by the second spouse! IRS systems are so antiquated that they can’t apply payments made by a spouse to a joint return. This causes unapplied payments, balance due notices, and a lot of stress, frustration, and time wasted on getting IRS to correctly apply the payments.
Thanks for reading this helpful message. And helpful is the key word for me. I want to ensure these messages are as helpful for you as possible, so feel free to reply with anything that didn’t make sense or any tax, business, or money question you want answered.
