Understanding and Meeting Your Quarterly Estimated Tax Obligations

Paying taxes is a necessary part of being a responsible citizen, and for many individuals, this includes making quarterly estimated tax payments. The second-quarter estimated tax deadline for 2024 is coming up on June 17, and failure to make a payment could result in penalties from the IRS.

While it is commonly believed that only self-employed individuals or small business owners need to make quarterly estimated tax payments, this is not entirely accurate. Anyone who receives income without withholdings, such as from contract jobs, freelancing, gig economy work, or a large distribution from a retirement account, may be required to make quarterly payments.

To avoid penalties for missed estimated tax payments, taxpayers must meet the IRS’s “safe harbor rules.” This means paying at least 90% of the current year’s tax liability or 100% of last year’s taxes, whichever is less. However, if your adjusted gross income from 2023 was $150,000 or higher, the threshold increases to 110%.

It is crucial to work with a tax professional if you anticipate rapid income growth in 2024. A tax professional can help create a proper tax plan and projection to ensure that you are making the appropriate estimated tax payments to avoid penalties.

The IRS recommends making estimated tax payments online for security, speed, and convenience. Online payment options include using your online account, IRS Direct Pay, or the Electronic Federal Tax Payment System (EFTPS). Having an account on IRS.gov makes it easy to make payments and monitor transactions. For those who prefer to mail payments, using certified mail with a return receipt is advised for proof of timely payment.

Understanding and meeting your quarterly estimated tax obligations are crucial to avoid penalties and ensure compliance with IRS regulations. By staying informed about the deadlines, meeting safe harbor rules, working with tax professionals for proper planning, and utilizing online payment options, taxpayers can fulfill their tax obligations efficiently and responsibly.