What are Estimated Tax Payments?
Estimated tax payments are often a requirement for taxpayers that generate income that does not have any corresponding tax withholdings such as: income from self-employment, interest and dividend income, capital gains, rents and royalties. However, estimates could also be required for wage earners or retirees whereby withholdings are not sufficient to cover an estimated tax liability.
Individuals are generally required to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. An underpayment penalty will be charged by quarter if the appropriate payments are not remitted throughout the year. The required annual payment must be paid in four equal installments. The due dates for the quarterly estimated tax payments are: April 15th, June 15th, September 15th and January 15th.
To avoid 2023 underpayment penalties, all withholding and estimates must be at least the lesser of:
- 90 percent of the tax shown on your 2023 return; or
- 100 percent of the tax shown on your prior year 2022 return (110 percent if your adjusted gross income (AGI) was over $150,000), which is often referred to as the “safe-harbor.”
An underpayment penalty does not apply if the tax due after subtracting tax withholding is less than $1,000 or if the taxpayer was a U.S. citizen or resident and had no tax liability on their prior year tax return that covered 12 months.
How are Estimated Taxes Paid?
Pay Directly from Your Bank Account
Direct Pay is a secure service you can use to remit estimated tax payments directly from your checking or savings account at no cost to you. In just a few easy steps you’ll receive instant confirmation that your payment has been submitted.
Pay by Mail
You can also remit your estimated tax payments by U.S. mail by enclosing a check or money order with the estimated tax payment voucher, Form 1040-ES. Checks should be made payable to the United States Treasury and with your name, address, daytime phone number, SSN, tax period and form number noted in the memo section of the check.
For more information, contact Michele Loretto, CPA, Manager, Tronconi Segarra & Associates, at 716.633.1373 or mloretto@tsacpa.com.
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