Who Must Pay Estimated Tax to the IRS?
The IRS is explicit: “Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.” (source: IRS.gov)
When am I required to pay my IRS estimated taxes?
| Income Earning Period | Tax Payment Due | Days to Save for Taxes |
|---|---|---|
| Jan 1 - March 31 | April 15 | 90 |
| April 1 – May 31 | June 15 | 61 |
| June 1 – August 31 | Sept. 15 | 92 |
| Sept. 1 – Dec. 31 | Jan. 15 | 122 |
The IRS doesn’t make it easy. Their tax periods each contain an unequal number of days to earn money and save up the estimated tax, yet all four tax payments are required to be equal in amount, or you can face penalties. For example, the four tax periods in 2019 contain 90, 61, 92 and 122 days. Form 1099 income earners are required to save up and pay the same amount of tax money for the 61-day tax period as they are for the period with 122-days. Whaaaat?! It’s the law.
How much tax am I required to pay each quarter?
CPA’s typically use Publication 505 and Form 1040-ES to figure a clients estimated tax amounts for each quarter. The IRS does provide the following General Rule:
In most cases, you must pay estimated tax for 2019 if both of the following apply:
- You expect to owe at least $1,000 in tax for 2019, after subtracting your withholding and refundable credits.
- You expect your withholding and refundable credits to be less than the smaller of:
- a. 90% of the tax to be shown on your 2019 tax return, or
- b. 100% of the tax shown on your 2018 tax return. Your 2018 tax return must cover all 12 months.
Important note: there are different rules, additions, and exceptions for household employees, high income taxpayers, farmers and fishermen.
My Tax Vault exists because the IRS makes everything so complicated!
When you sign up for My Tax Vault we will:
- Conduct an analysis to determine your required income tax payment amounts for each tax period, per IRS “safe harbor” rules.
- Set up an automated tax savings plan, much like when an employer withholds and sends your taxes to the IRS, keeping the funds “out of sight, out of mind.”
- Make your estimated tax payments in full and on time.
- Track all of your tax savings and IRS payments in your online profile at mytaxvault.com