Estimated tax payments

Understanding estimated tax payments

In many cases, if you earned income through self-employment or gig work, or you have investment income, you’ll need to pay estimated taxes during the year, or you risk paying penalties when you go to file. When you are an employee, your employer withholds federal and other taxes for you in each pay period. Money typically isn’t withheld if you’re an independent contractor, consultant or other type of self-employed taxpayer in the gig economy.  

When are estimated tax payments due?

For 2023, here's when estimated quarterly tax payments are due to the IRS:  

Estimated tax payment schedule 

Who needs to make estimated tax payments?

As mentioned, estimated tax payments are needed for people who receive taxable income that doesn’t already have federal income taxes withheld. This includes interest, dividends, other types of investment income, and self-employment income.

There are types of income such as unemployment and retirement benefits that allow voluntary withholding. In these cases, it’s your choice to either have your taxes withheld from your payment or make estimated tax payments instead.

In most cases, you are required to make estimated tax payments if you expect to owe at least $1,000 when you file your taxes, you are self-employed or have a side gig during the year. There are several types of income that could oblige you to make estimated tax payments, including the following:

• Self-employment or gig income, such as a ride-share driver and grocery or food deliverer;
• Investment income, such as interest, dividends and capital gains from stock sales;
• Rental income;
• Certain legal settlements;
• Gambling winnings;
• Prizes; and
• Selling a business.

Self-employment income is the most common type of income requiring quarterly tax payments. If you’re self-employed, every quarter, you’re responsible for paying estimated taxes to cover your expected:

• Income taxes;
• Self-employment taxes, which are the same as yours and your employer’s equal share of the Medicare and Social Security taxes paid to IRS each payday; and
• Other taxes such as alternative minimum taxes.

If you have questions about whether you should be making the quarterly tax payments, work with your Jackson Hewitt Tax Pro.

How to calculate estimated tax payments

You use IRS Form 1040-ES  to calculate and pay your quarterly estimated tax payments. You can complete Form 1040-ES manually, with tax software, or with your Jackson Hewitt Tax Pro and file the form quarterly. Whether you need to make quarterly tax payments depends on the amount of taxes you expect to pay when you file your taxes.

To figure your estimated tax, you must figure your expected adjusted gross income which includes your total income minus certain deductions, taxable income, income taxes, other taxes, and credits for the year.

When figuring your estimated tax for the current year, you have two choices to avoid a penalty. You can pay 100% of the total taxes on your prior year return, which may leave you owing more than you thought. Or you can estimate the amount of income you expect to earn for the year and the taxes that would be owed on this income.

If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. You want to estimate your income as accurately as you can to avoid penalties. You must make adjustments for changes in your own situation and for any changes in the tax law.

It’s important to note that if you don’t pay enough tax through withholding and estimated tax payments, the IRS may charge you 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. A Tax Pro can help with crunching the numbers with you.

Payment options for estimated taxes

You may send estimated tax payments with Form 1040-ES by mail, or you can pay through IRS online, by phone, or from your mobile device using the IRS2Go app. The most secure method is to pay online since this can get your payment in and acknowledged immediately and you have the ability to prove you made the payment quicker and there is no worry about theft from a mailbox.

You do not need to file Form 1040-ES if you make estimated tax payments online. You have options for making online payments.

IRS Online Account

You have the most flexibility in how you pay by setting up an IRS Online Account. Creating your account takes about 15 minutes to two hours, because it requires verification. But once you set it up, you can pay using just about any payment method, such as your bank account, credit card, and the Electronic Federal Tax Payment System (this requires an additional account set up). In addition, your online account allows you to access many areas of your account securely, including your past returns and transcripts, IRS notices, your refund, and more.

IRS Direct Pay

If you aren’t ready to set up an IRS Online Account, but you need to pay estimated taxes on your personal income, you can use IRS Direct Pay. It offers a faster way to pay timely and accurate estimated tax payments instead of mailing, because it doesn’t require you to create an account. But it gives you more limited access to your IRS information than an IRS Online Account.

Additionally, when you’re paying online using either method, you can pay by the month or transaction. For example, you may want to pay taxes on investments and rental income by the month, because they’re ongoing, while you would pay a single, large sum for your estimated taxes on a less frequent transaction, such as winning the lottery.

If you make multiple payments before the quarterly deadline, the IRS considers them as a single sum for the quarter in question. For example, let’s say you paid $1,000 per month in estimated taxes based on your self-employment income in January and February, and you paid $5,000 in March for a sizable taxable legal settlement you received. In this case, the IRS would consider your first-quarter prepaid taxes to be $7,000, because you paid all the amounts before April 15.

If you decide to mail in your payment, the date of the U.S. postmark is the date of payment. If the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that isn’t a Saturday, Sunday, or holiday.

A Jackson Hewitt Professional can help you with making sure that the payment is accurate and help figuring out which payment method may be right–and easiest–for you.

Quarterly reporting for estimated tax payments

As mentioned above, for estimated tax purposes, the year is divided into four payment periods, or quarters. Each period has a specific payment due date every year. If you don’t pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

You need to report the money you paid using the 1040-ES on your 1040 when you file your taxes for the year, in the same area as withholdings and refundable credits. This is important, so that you don’t end up paying taxes on your income twice.

As more and more people continue to earn their living as part of the gig economy, it’s critical to understand the rules around quarterly tax payments to the IRS. Find a local Jackson Hewitt Tax Pro who can help you understand what you may owe throughout the year.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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