Quarterly estimated tax payments are periodic payments made by individuals who earn income that is not subject to regular tax withholding. This typically includes self-employed individuals, freelancers, investors, and retirees with significant non-wage income.
Instead of having taxes automatically deducted from a paycheck, these taxpayers must estimate their annual tax liability and make four equal payments throughout the year—usually due in April, June, September, and January.
These payments cover both income tax and self-employment tax (which covers Social Security and Medicare for self-employed workers). Failing to pay enough through these installments can result in penalties when filing the annual tax return.
**Who Should Make Estimated Tax Payments?**
- Self-employed individuals (freelancers, contractors, small business owners)
- Investors with significant capital gains
- People receiving rental income
- Those with income from retirement accounts without withholding
- Anyone who expects to owe at least $1,000 in federal taxes after subtracting withholdings
**How to Calculate Estimated Taxes:**
Taxpayers can use IRS Form 1040-ES to estimate their tax liability. It's often wise to consult with a tax professional or use software to ensure accuracy and avoid underpayment penalties.
**Tips for Managing Estimated Taxes:**
- Set aside money regularly to cover each payment.
- Adjust your estimates if your income changes significantly during the year.
- Keep track of deadlines to avoid late-payment penalties.