Estimated Tax Payments: Who Owes Them and When is the Next

This article organizes the original guidance on estimated tax payments: who owes them and when is the next one due? into clear sections for easier reading and reference.

Overview

This opening section presents the main context from the original post.

If you don’t have enough federal tax withheld from your paychecks and other payments, you may have to make estimated tax payments. This is the case if you receive interest, dividends, self-employment income, capital gains, or other income.

Here are the applicable rules for paying estimated tax without triggering the penalty for underpayment.

When are the payments due?

This section keeps the original guidance focused on when are the payments due?.

Individuals must pay 25% of a “required annual payment” by April 15, June 15, September 15, and January 15 of the following year to avoid an underpayment penalty. If one of those dates falls on a weekend or holiday, the payment is due on the next business day.

So the third installment for 2022 is due on Wednesday, September 15. Payments are made using Form 1040-ES.

How much should you pay?

This section keeps the original guidance focused on how much should you pay?.

The required annual payment for most individuals is the lower of 90% of the tax shown on the current year’s return or 100% of the tax shown on the return for the previous year. However, if the adjusted gross income on your previous year’s return was more than $150,000 ($75,000 if you’re married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.

Most people who receive the bulk of their income in the form of wages satisfy these payment requirements through the tax withheld by their employers from their paychecks. Those who make estimated tax payments generally do so in four installments.

After determining the required annual payment, divide that number by four and make four equal payments by the due dates.

But you may be able to use the annualized income method to make smaller payments. This method is useful to people whose income flow isn’t uniform over the year, perhaps because of a seasonal business.

For example, if your income comes exclusively from a business operated in a resort area during June, July, and August, no estimated payment is required before September 15.

Who owes the penalty for underpaying?

This section keeps the original guidance focused on who owes the penalty for underpaying?.

If you don’t make the required payments, you may be subject to an underpayment penalty. The penalty equals the product of the interest rate charged by the IRS on deficiencies times the amount of the underpayment for the period of the underpayment.

However, the underpayment penalty doesn’t apply to you if:

• The total tax shown on your return is less than $1,000 after subtracting withholding tax paid;
• You had no tax liability for the preceding year, you were a U.S. citizen or resident for that entire year, and that year was 12 months;
• For the fourth (January 15) installment, you file your return by that January 31 and pay your tax in full; or
• You are a farmer or fisherman and pay your entire estimated tax by January 15, or pay your entire estimated tax and file your tax return by March 1.

In addition, the IRS may waive the penalty if the failure was due to casualty, disaster, or other unusual circumstances, and it would be inequitable to impose the penalty. The penalty can also be waived for reasonable cause during the first two years after you retire (and reach age 62) or become disabled.

If you have any questions, please reach out to your personal Bowers contact or email us at info@swcllp.com.

Source: Thomson Reuters Checkpoint

Related Resources

These resources connect the article topic with related Bowers service pages and approved professional reading.

• Tax Services
• Business Strategy & Growth
• Bowers Updates
• About Bowers
• Harvard Business Review
• Accounting Today

FAQ

The questions below summarize the main points already covered in the article.

What is the main focus of Estimated Tax Payments: Who Owes Them and When is the Next One Due??

The article focuses on estimated tax payments: who owes them and when is the next one due? and organizes the original guidance into sections for easier review.

What topics does the article cover first?

The article begins with when are the payments due? and then continues through the remaining points in the original post.

Which additional areas are included?

Additional sections include how much should you pay?, who owes the penalty for underpaying?.

Does the post include action items or reminders?

Yes. The original post includes listed items that have been kept in list format for easier scanning.

Was the original post wording changed?

The revision keeps the author wording and updates the structure so the post is easier to read online.