The IRS provides Form 1040-ES for you to calculate and pay estimated taxes for the current year. ES stands for estimated tax, not to be confused with the standard 1040 which relates to the previous year. You use Form 1040-ES to pay income tax, self-employment tax and any other tax you may be liable for.
Who Pays Estimated Tax?
Certain forms of income are not deducted at the source. For example, independent contractors and freelancers need to deduct their own taxes from their pay. Additionally, earnings from interest, dividends and rent, taxable unemployment compensation, retirement benefits, and the taxable part of your Social Security benefits are other examples of income that is not taxed at the source. If you have any such income coming in, then you should pay the estimated tax.
Paying Estimated Taxes
The estimated tax payment is based on an estimation of your income for the current year. As such, it is possible to underestimate, resulting in an underpayment and penalty. To avoid this, use your previous year’s taxes as a guide. As long as you pay 100 percent of the previous year’s tax, you won’t be subject to the penalty. If you end up overpaying, you can receive a tax refund at the end of the year.
However, this doesn’t apply to quarterly taxes. Even if you overpaid the total tax due for the year and are eligible for a refund, if you pay quarterly taxes late you will receive a penalty. The Form 1040-ES package includes worksheets to help you account for differences between the previous and current year’s income and calculate the tax you owe. And remember, the professionals at Paramount Tax Relief in Sacramento are always here to help!
When To File 1040-ES for Quarterly Taxes
Estimated tax payments are due four times in a tax year. For calendar year taxpayers, the due dates are April 15, June 15, September 15 of the current year, and January 15 of the following year.
If you work on a fiscal year calendar, then the four due dates are spread through the fiscal year, on the 15th day of the fourth, sixth, and ninth month of the year, and on the 15th of the first month of the next fiscal year.
Sacramento Taxpayers Can Have Successful Tax Relief by Making Payments
You can pay weekly, biweekly, or whatever interval suits you. Just make sure to pay the full amount due for that period. You can also estimate your tax liability for the whole year and pay the estimated tax in one lump sum by the 15th of April of the current year.