How to prepare to pay estimated taxes (2024)

If you earn income from sources like interest, dividends, capital gains, prizes and awards, or self-employment income where taxes aren’t withheld, you may owe quarterly estimated tax payments. These payments are important to help avoid penalties for underpayment.

These payments are for each quarter of the year and are typically due on the 15th of the month after each quarter ends. You can mark your calendar accordingly:

  • January 1 to March 31; due April 15

  • April 1 to May 31; due June 15

  • June 1 to August 31; due September 15

  • September 1 to December 31; due January 15 of the following year

If these due dates fall on a weekend or federal holiday, payments are due the next business day.

Individuals generally use Form 1040-ES to calculate their estimated tax. Once you know how much you are going to owe each quarter, you can start to plan accordingly.

Looking to make sure you’re prepared for these estimated tax payments? We’re sharing some tips on how to set yourself up for success if you’re expecting to pay the same amount each quarter throughout the year.

One way to make sure you have enough money to cover your estimated tax by its due date is to take the amount you owe each quarter and divide it by 13 — the number of weeks each quarter. Focus on putting this much in a high-yield savings account or money market deposit account each week throughout the quarter.

Using a platform like Raisin, you can open no-fee accounts across a network of federally insured banks and credit unions, keeping your money safe up to $250,000 per institution while earning market-leading interest rates.

Your estimated tax fund will grow throughout the quarter so, if you keep making weekly deposits, not only will you have enough to cover your bill but you should have a little left over in interest earnings to either put toward next quarter’s bill or to put toward another savings goal.

To get started, select an account below, sign up in just a few minutes, and initiate your first deposit today:

Another way to prepare your IRS estimated tax payments is to store money for them in high-yield certificate of deposits, also known as CDs.

Using Raisin, you can find a CD with a term that lines up with just before each of your quarterly estimated tax payments are due. For instance, if it’s the start of the year, you’ll want to find:

  • a three-month CD to align with April estimated taxes

  • a six-month CD to align with June estimated taxes

  • a nine-month CD to align with September estimated taxes

  • a one-year CD to align with January estimated taxes

Similarly to a CD ladder, you’ll want to deposit equal amounts into each CD. Once you deposit funds, your money will grow at a fixed interest rate — allowing you to actually have extra money to pay estimated tax payments once each due date comes around.

Plus, with funds subject to early withdrawal penalties if accessed prior to maturity, you’ll still be able to access your money in case of emergency but otherwise can limit your temptation to spend it.

Then, as your CDs mature, you’ll be able to pay your estimated tax payments — plus you’ll have a little extra in interest earnings to treat yourself or put toward one of your savings goals.

On the Raisin platform, finding CDs that align with your specific timelines is simple. All of the CDs on the Raisin are offered by federally insured banks and credit unions, meaning your funds remain secure up to $250,000 per depositor, per institution. For joint accounts, this increases coverage by $250,000 per co-owner for a total of $500,000 per institution.

Best of all, there are no hidden fees.

Find the first CD that aligns with your goals in the table below, sign up for an account in as little as a few minutes, and get started today:

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

How to prepare to pay estimated taxes (2024)

FAQs

How do I prepare a tax estimate? ›

To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for the prior year as a starting point.

What is the best way to pay estimated taxes to IRS? ›

The Electronic Federal Tax Payment System and IRS Direct Pay are two easy ways to pay. Alternatively, taxpayers can schedule electronic funds withdrawal for up to four estimated tax payments at the time that they electronically file their Form 1040. Taxpayers can make payments more often than quarterly.

What is the 90% rule for estimated taxes? ›

Estimated tax payment safe harbor details

The IRS will not charge you an underpayment penalty if: You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year, or. You owe less than $1,000 in tax after subtracting withholdings and credits.

How do you know if you make enough to pay taxes? ›

As an example, somebody under the age of 65 filing as a single taxpayer will only be required to file if his or her income is $13,850 or more. Why $13,850? Simple—that is the value of the standard deduction for a single taxpayer (including one exemption) in 2023.

What is the 110% rule for estimated tax payments? ›

if you pay at least 90% of the tax obligation for the current year. if you pay an amount equal to 100% (if your adjusted gross income for the year is over $150,000 then you'll need to pay 110%) of your taxes for the prior year.

What triggers the IRS underpayment penalty? ›

This penalty specifically applies when the total tax payments made during the year fall short of either 90% of the current year's tax that's owed or 100% of the previous year's tax. For those earning a high income, this minimum required payment increases to 110% of the prior year's tax.

Is it okay to pay all estimated taxes at once? ›

Answer: Generally, if you determine you need to make estimated tax payments for estimated income tax and estimated self-employment tax, you can make quarterly estimated tax payments or pay all of the amount due on the first quarterly payment due date.

What is the smartest way to pay taxes? ›

What's the Best Way to Pay Your Tax Bill
  1. Borrow the money. This is a great option if you have someone willing to loan you the money, especially with no interest.
  2. Pay with a credit card. You may think about using a credit card now and paying off the balance over time. ...
  3. Work with the IRS.

How to avoid IRS underpayment penalty? ›

Generally, taxpayers should make estimated tax payments in four equal amounts to avoid a penalty. However, if you receive income unevenly during the year, you may be able to vary the amounts of the payments to avoid or lower the penalty by using the annualized installment method.

What happens if I don't make estimated tax payments? ›

You'll have to pay the remaining tax owed (hopefully, this is pretty obvious—you don't get released from your tax duties just because you didn't expect you'd have to pay them). You may also have to pay a penalty.

What happens if you don't pay quarterly taxes? ›

If you don't pay your estimated taxes on time (or if you don't pay enough), the IRS can charge you a penalty. The amount you owe increases the longer you go without payment. The failure to pay penalty is 0.5% of the unpaid taxes for each month or part of a month you don't pay, up to 25% of your unpaid taxes.

What happens if you pay too much estimated tax? ›

If you've overpaid your taxes, the IRS will issue you a refund when you file your taxes for the year. This is the easiest way to know that you've paid more into taxes than necessary.

At what age is Social Security no longer taxed? ›

Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.

Does Social Security count as income? ›

You must pay taxes on up to 85% of your Social Security benefits if you file a: Federal tax return as an “individual” and your “combined income” exceeds $25,000. Joint return, and you and your spouse have “combined income” of more than $32,000.

Why is everyone owing taxes this year in 2024? ›

Under-withholding from Your Paycheck

Under-withholding is the #1 reason individuals owe taxes. This occurs when not enough tax is taken out of your paychecks throughout the year. If you haven't updated your W-4 form after a major life change, income adjustment, or second job, you might find yourself in this situation.

Can you pay estimated taxes without filing 1040 ES? ›

When to file Form 1040-ES. You must make estimated tax payments and file Form 1040-ES if both of these apply: Your estimated tax due is $1,000 or more.

How do I avoid 110% estimated tax penalty? ›

Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is ...

What is the penalty for not paying estimated taxes? ›

5% of the amount due: From the original due date of your tax return. After applying any payments and credits made, on or before the original due date of your tax return, for each month or part of a month unpaid.

References

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