​A Step-by-Step Guide to Estimated Tax Payments in 2023

If you’re a taxpayer with income that isn’t subject to withholding, it’s important to understand the concept of estimated tax payments.

Did we lose you?

Let’s back up a second and explain a little more about what we’re talking about.

Estimated tax payments are periodic income tax payments that some taxpayers have to make to the IRS.

You’ll need to make such payments if:

• You’ll owe at least $1,000 in taxes for the current year, or
• You expect that your withholding and refundable credits won’t be sufficient to cover:

• 90% of your 2023 tax liability or
• 100% of your 2022 tax liability (whichever is smaller).

It’s worth noting that specific rules exist for estimated tax payments for farmers, fishermen, certain household employers, higher-income taxpayers, and nonresident aliens. For more details, check out the IRS’s Publication 505, Tax Withholding and Estimated Tax.

So, who needs to make estimated tax payments? It’s a long-ish list. If you’re a gig worker, sole proprietor, retiree, partner, or S corporation shareholder, you’re on the hook for such payments.

Also, if you receive income that’s not subject to tax withholding, you have to pay estimated tax payments. Those income sources include self-employment income, interest, dividends, alimony, rent, royalties, or capital gains.

But wait! There’s more! If you have income from multiple sources or experience significant changes in income or deductions throughout the year, you might also be required to make estimated tax payments.

Calculating your estimated tax payments is a big part of the process.

Start by estimating your adjusted gross income, taxable income, taxes, deductions, and credits for the year. You can use your previous year’s tax return as a starting point and then make adjustments if you’ve had any income changes or expenses.

The IRS provides helpful tools like the Tax Withholding Estimator, theIRS Interactive Tax Assistant, and Form 1040-ES Estimated Tax for Individuals to guide you through the calculation process.

For the 2023 tax year, remember that you’ll get a Form 1099-K called Payment Card and Third Party Network Transactions in January 2024 if you:

• Have a side hustle,
• Operate as a sole proprietor, or
• Have made sales online, resulting in payments over $600 through a payment app, online marketplace, or payment card.

Make sure to include this income when calculating your estimated tax payments.

You’ve got multiple options for making your estimated tax payments.

• Online: You can opt for online payments through the IRS Online Account or using IRS Direct Pay and use your checking or savings account. You can also pay with a debit card, credit card, or digital wallet. You can learn more atIRS.gov/payments or through the IRS2Go app.
• Electronic Federal Tax Payment System: You have to register before you can use this option, and it can take up to seven business days. But once you’re registered, you can schedule automatic payments.

The due dates for your estimated tax payments fall into four quarters:

• First quarter: April 15
• Second quarter: June 15
• Third quarter: Sep. 15
• Fourth quarter: Jan. 15 of the following year

If a due date falls on a weekend or holiday, pay on the next business day. The IRS might impose penalties for late or insufficient estimated tax payments, so pay on time.

And finally, keep a record of your payments and report them on your annual tax return. Include the total estimated payments on Form 1040, specifically on line 26. If you elected to credit any overpayment from your previous year’s tax return, remember to include that as well.

Let us know if you have questions about your estimated tax payments.