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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 ...

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.