Understanding Estimated Tax Payment Rules

By Scott Hennessy On July 2, 2024
Scott is a CPA & Manager at BSB.

Who Needs to Pay Quarterly Tax Estimates?​

  • Technically, everyone is obligated to make estimated tax payments throughout the year...
  • But typically, W-2 employees will have their obligation covered by tax withholding each paycheck
  • Those with income from sources not subject to tax withholding will usually end up having to make estimated payments:
    • Independent contractors
    • Small business owners
    • Those with significant investment income

The due dates for these payments to be made are:

Q1 - April 15th​

Q2 - June 15th​

Q3 - Sept 15th​

Q4 - Jan 15th

Why Do Estimated Taxes Need to be Paid?

Not paying sufficient quarterly estimates will subject you to underpayment penalties for the number of days each quarterly payment is late

The IRS current penalty rate is 8%

This rate is put in place each quarter base on interest rates to ensure taxpayers will pay estimates on a timely basis rather than trying to invest money and defer payments.

How Much Do I Have to Pay?

There are 2 options for determining how much to pay each quarter to avoid underpayment penalties

Option 1: Pay 90% of your current year’s taxes. ​

  • Taxpayers need to estimate their current taxable income, taxes, deductions and credits earned each quarter
  • This option could be beneficial if your business is seasonal - you may not have to pay as much, or any tax, in earlier quarters when business is slow

Option 2: Pay 110% of your prior year's taxes.​

  • The safest option is to pay 110% of previous year's taxes.
  • Only 100% if your AGI was less than $150,000 married filing joint or $75,000 for married filing separately) ​

If you're a taxpayer in the New York Metro Area and need help making the best decisions for tax return, request a consultation with our experienced accountants today. We look forward to providing you service.

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