As tax season approaches, many taxpayers are focused on filing their taxes by the April 15 deadline. However, it is important to remember another key deadline: the due date for first-quarter estimated tax payments. These payments are typically required for individuals earning income from sources without tax withholdings, such as gig economy work, freelancing, small businesses, retirement, or investing. If you anticipate owing at least $1,000 in taxes, you must make your first-quarter estimated payment for 2024 by April 15.
Failing to meet the deadlines for estimated tax payments can result in penalties imposed by the IRS. The penalty is calculated based on the current interest rate and the balance due, compounding daily. To avoid these penalties, taxpayers should ensure that their payments meet the “safe harbor” rules set by the IRS. These rules require paying at least 90% of the current year’s tax liability or 100% of the previous year’s taxes, whichever is smaller. For individuals with adjusted gross income of $150,000 or higher, the safe harbor threshold increases to 110%.
Calculating Quarterly Payments
Determining the amount of quarterly estimated tax payments can be confusing for some taxpayers. To simplify the process, taxpayers can divide their previous year’s total tax liability by four and pay equal amounts each quarter. For example, if a taxpayer owed $20,000 in taxes for 2023, they could make quarterly payments of $5,000 to meet the safe harbor requirements. It is important to note that if your income for 2024 is higher than expected, you may still owe additional taxes if you do not adjust your payments accordingly.
The IRS offers several convenient options for making quarterly tax payments. Taxpayers can pay online through their IRS account, which allows them to track payment history, monitor pending payments, and receive confirmation of payment. For those without an IRS account, payments can be made through IRS Direct Pay or the Electronic Federal Tax Payment System (EFTPS) provided by the U.S. Department of the Treasury. It is crucial to ensure that payments are made on time and confirmation is received to avoid penalties and interest charges.
Staying informed about tax deadlines and making timely payments is essential for all taxpayers to avoid penalties and interest charges. By understanding the requirements for estimated tax payments and utilizing the available payment options, taxpayers can ensure compliance with IRS regulations and maintain financial stability. It is important to seek guidance from tax professionals if you have any doubts or questions about estimated tax payments to avoid potential financial repercussions in the future.
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