Estimated Tax Payments: What They Are And When To Pay Them In 2024

Are you new to freelancing? Did you get a side gig to make some extra cash? It may feel great to increase your cash flow, but you have to remember that not all of that money is yours to keep. Since you are not withholding taxes from your paychecks, you may have to make estimated tax payments every quarter to pay your taxes. Follow along to learn more about estimated tax payments and how to manage them in your financial plan.

What Is An Estimated Tax Payment?

Estimated tax payments are taxes that some people have to pay throughout the year if an adequate amount of taxes are not automatically withheld from their paychecks. These payments must be made a minimum of four times per year.

Full-time employees who have their taxes automatically taken out of their paychecks may not be familiar with this method of paying taxes. However, there are several other types of employees who don’t have taxes on autopay, so they must be proactive about paying them throughout the year. Some full-time employees who are not withholding enough taxes should also be aware they may have to make estimated tax payments.

Who Pays Estimated Quarterly Tax Payments?

You will have to pay quarterly estimated tax payments if you meet one of the following conditions:

• You are self-employed: If you are an independent contractor, freelancer or even just have a side gig to make some extra money, you probably have to make quarterly tax payments. That’s because these types of jobs typically don’t have taxes automatically withheld from your paycheck. This is the most common reason to make estimated tax payments.
• You aren’t having enough taxes withheld: Even if you’re having money automatically withheld from your paychecks, it might not be enough to cover your taxes. If you expect to owe $1,000 or more in federal taxes after your withholding, you will have to pay estimated quarterly tax payments. If your withholding covers less than 90% of your current year taxes or less than 100% of your previous year’s taxes (whichever is less), you also must make estimated tax payments.
• You own a business: Corporations typically make estimated payments if they expect to owe more than $500 in taxes when they file their return.

How To Estimate Quarterly Taxes

You can estimate your quarterly taxes by using Form 1040-ES from the IRS. This form has a helpful worksheet that you can use to organize your finances and determine how much you owe.

According to the IRS, the key data points to use when estimating your taxes are your expected adjusted gross income, taxable income, deductions and credits for the year. If your income is similar to the previous year, it may be helpful to use your previous year’s filing as a guide. For example, if you know you owed $20,000 in taxes last year, and you estimate that you will make a similar amount of money this year, you can estimate that you will need to pay $5,000 per quarter this year.

If your income is unpredictable or much different than previous years, these calculations may be more challenging. If you are uncertain about how you should estimate your quarterly taxes, it may be wise to talk to a tax professional to make sure you pay the correct amount and don’t have to pay any penalties.

When Are Quarterly Estimated Taxes Due In 2024?

The time periods and due dates for estimated tax payments in 2024 are as follows:

• For income earned September 1 – December 31, 2023, the estimated payment is due on January 16, 2024.
• For income earned January 1 – March 31, 2024, the estimated payment is due on April 15, 2024.
• For income earned April 1 – May 31, 2024, the estimated payment is due on June 17, 2024.
• For income earned June 1 – August 31, 2023, the estimated payment is due on September 16, 2024.

How To Pay Quarterly Estimated Taxes

You can make your estimated tax payments online, over the phone, on a mobile app, or by mail. According to the IRS, the easiest of these options is the Electronic Federal Tax Payment System (EFTPS). This is a free system operated by the Department of Treasury that allows you to safely and conveniently file your taxes electronically.

FAQ About Estimating Quarterly Taxes

Below are some of the most common questions about estimating quarterly taxes.

What happens if I don’t pay or pay too little in estimated taxes?

You will be charged a penalty fee by the IRS if you fail to pay estimated taxes or misjudge your estimation and pay too little. The amount of the penalty depends on the amount unpaid and how long it is overdue. The penalty also depends on whether you failed to pay an amount shown as tax on your return, whether you failed to report a payment on your return, or whether you didn’t file a tax return at all.

Can I make quarterly estimated tax payments whenever I want?

Yes! The payments are due once per quarter at a minimum, but that does not mean you have to pay them only four times per year. If you prefer to pay the estimated taxes weekly or monthly, you can as long as you pay enough by the quarterly due date.

Is it best to pay estimated taxes in equal amounts?

How much you pay each quarter depends on your ability to estimate your taxes. If you have information from previous years and are confident in how much you will have to pay in a year, dividing that amount into four equal payments may be your best option. If your situation is more complicated or unpredictable, you may want to consult a tax professional for advice.

How often should self-employment taxes be paid?

Self-employment taxes are generally required to be paid quarterly. This self-employment tax covers Social Security and Medicare taxes.

Are there any specific arrangements for farmers and fishermen when it comes to making estimated tax payments?

Yes! Farmers and fishermen must pay estimated taxes if their withholding and tax credits make up less than 66.66% of their current year taxes rather than 90%.

How do partnerships file and pay quarterly estimated taxes?

Since partners are not employees of the partnership, they also don’t withhold income for taxes. They will have to file form 1040-ES to pay their quarterly taxes.

The Bottom Line

Estimated tax payments are required quarterly if you are self-employed or not withholding enough taxes from your paychecks. It is essential to set apart a portion of your income every quarter so you can make these payments accurately and avoid penalties. If you need a tool to manage your taxes as well as your spending, savings and bill due dates, download the Rocket Money^SM app to take the next step toward financial freedom.