How to Pay Federal Estimated Taxes Online to the IRS

taxes pen calculatorAs a small business owner and freelancer, I’m amazed by how quickly my employed friends get their taxes done. Their employers withhold taxes year-round, and all these friends have to do is file by the IRS tax deadline to get a tax refund. But if, like me, you don’t have a human resources department pulling tax money out of your paycheck for you, you have to pay estimated taxes four times a year.

This system helps the government maintain a reliable schedule of when money is coming in, and it protects you from having to cough up all the dough at once. While it’s a little extra work, filing your estimated tax payments each quarter helps you stay on top of your taxes.

What Are Estimated Tax Payments?

When you work full-time, your company will withhold federal, state, and any local taxes from your paycheck automatically. With each pay cycle the money automatically goes to the IRS, so when tax filing season comes around, you just let the IRS know how much you’ve already sent and then either send the rest or wait for your refund. If you’re in business for yourself, however, you need to be your own HR department and regularly send the IRS money.

Paying estimated taxes requires you to estimate in advance how much you expect to owe the government in taxes for the current tax year. You then send in four quarterly payments that together total the amount. The dates quarterly payments are due by fall on or around the middle of the months of April, June, September, and January. For the 2016 tax year, estimated tax payments are due April 18, 2016; June 15, 2016; September 15, 2016; and January 17, 2017.

If you don’t make quarterly estimated tax payments and are required to, the IRS will hit you with an underpayment penalty. To avoid penalties, you need to know if you’re responsible for estimated taxes, and how to determine and send your payments efficiently.

Do You Need to Pay Estimated Taxes?

If you fall into one of these two groups, you most likely need to make estimated tax payments:

1. Self-Employed Full-Time Workers and Small Business Owners
If you file as a sole proprietor, S-Corporation shareholder, partner, or self-employed, very likely you need to pay estimated taxes on a regular basis.

2. Freelancers with a Regular Job that Withholds Taxes
If you have a full-time job with tax withholding but also work on the side and either receive a 1099-MISC or have clients or customers pay you directly, you need to determine how much of your income is untaxed. If your freelance work constitutes a significant portion of your income, you should probably pay estimated taxes. A good rule of thumb is that if your side income doesn’t come to more than 10% of your gross income (earnings before taxes), you’re probably not going to need to make estimated tax payments.

How to Estimate Your Taxes

Plenty of tax preparation programs provide you with an estimate of the quarterly payments you need to make, as well as vouchers to send in to the IRS with those payments, once you file with them. Otherwise, follow the IRS instructions for Form 1040-ES to determine how much you should pay in estimated taxes and to create vouchers if you choose to send those payments in by mail.

You may be able to pay different amount throughout the year depending on how you receive your income. To avoid penalties, be sure to pay the minimum amount required for the quarter by the quarter’s due date. You can also make more than four estimated tax payments throughout the year by copying an unused payment voucher, if you choose.

How to Pay

You have a range of options for submitting payments. You can pay online by debit or credit card or by using the EFTPS system (you have to enroll), or pay by phone (by debit, credit, or EFTPS), or by mail.

Registering with EFTPS isn’t complicated: You just need a bank account, social security number or employer identification number, and a mailing address. You must use the mailing address that the IRS has on file, and they’ll mail you a PIN in about a week. Using that PIN, you can get into their website anytime to schedule a payment. Once you set up your bank account with EFTPS, you can schedule withdrawals.

When to Pay

You should pay taxes on the earnings from each quarter after the quarter has ended. However, the quarters aren’t equal – don’t let the June deadline surprise you.

Estimated tax payment deadlines are below:

  • First Quarter (January 1 to March 31): Estimated taxes due April 18, 2016
  • Second Quarter (April 1 to May 31): Estimated taxes due June 15, 2016
  • Third Quarter (June 1 to August 31): Estimated taxes due September 15, 2016
  • Fourth Quarter (September 1 to December 31): Estimated taxes due January 17, 2017

Escaping the Underpayment Penalty

You may be liable for an underpayment penalty if you pay less than 100% of your tax liability by the tax filing deadline. You can avoid the penalty if you meet one of the exceptions below:

  1. You’ve already paid (through estimated tax payments or withholding) the lesser of the amount you paid in taxes last year or 90% of what you owe this year. The one exception is that you must pay 110% of last year’s tax liability if your gross income was at least $150,000.
  2. Your tax liability is $1,000 or less for the entire year.
  3. You had no tax liability last year.
  4. Your total withholding for the year (estimated payments you made) is within $1,000 of your total tax liability on the deadline.

Final Word

If you’re a “better safe than sorry” taxpayer, and you’re concerned about underpayment, you can either increase your federal income tax withholding allowances if you have a full-time job, or overestimate your quarterly tax payments if you’re self-employed. The IRS doesn’t charge you a penalty for sending them too much money, of course.

In the end, the estimated tax process prevents you from facing a frightening tax bill in April. While it might be a little inconvenient throughout the year, estimated tax payments can be a great tool to help self-employed people and small-business owners budget their tax payments.

Are you making quarterly estimated tax payments? What tools do you use to estimate your tax due and make sure you don’t miss deadlines?

  • AJ

    If I’m paying the IRS my income taxes in quarterly installments, and my estimates are fairly accurate, shouldn’t I owe little to no money on April 15?

    Why is it that I always end up having to pay a few thousand dollars in taxes?

    • Kira Botkin

      It sounds like your estimates are in fact not fairly accurate, then. How are you doing you estimates?

      • AJ

        It seems like I end up paying double after I submit my April 15 taxes. I end up overpaying and getting a refund check because the instructions are confusing for someone who never went to business school or studied accounting. I’m a sole proprietor performing freelance technical services. They didn’t cover this stuff in my major.

        Maybe I’m confusing the purpose of the annual and quarterly payments?

        • AJ

          I pay the quarterly taxes, but then after I complete the annual form, it tells me I owe more, so I pay more, and then I get an overpayment check.

        • Kira Botkin

          It sounds more like it is time for you to use an accountant or go to a tax preparation company.

        • Kira Botkin

          The annual payment is not supposed to happen if you are making quarterly payments. The taxes you pay on April 15th are just to make up for whatever you didn’t pay the year before because you didn’t estimate high enough – you should be paying the majority of your taxes through the quarterly payments during the year. Like the poster above, you may not be adding those quarterly payments to your “paid” column, or your estimates may be way under.

  • Will Keyworth

    hi there, thanks for your great information. i am registered with the eftps but i don’t know what form number my EQTP is. is there one in the drop down? or do i have to manually add the tax form number? thanks. sorry for seeming dum. i’m an artist not a numbers person!

  • Will Keyworth

    hi there, thanks for your great information. i am registered with the eftps but i don’t know what form number my EQTP is. is there one in the drop down? or do i have to manually add the tax form number? thanks. sorry for seeming dum. i’m an artist not a numbers person!

  • JohnB

    How will I report the quarterly payments I’ve made to the IRS in 2012 on my 2012 tax return? or does the IRS send me something like a 1099?

    • Kira Botkin

      Line 63 – 2012 estimated tax payments. They do not send you anything.

  • Randi

    Could you pay weekly or even monthly instead of quarterly? And if you over estimate what you owe will you get a refund check come April?

    • Kira Botkin

      Yes, you can pay the IRS as often as you like. And if you pay them too much they will send you a refund.

  • Shannon

    I pay mine by the quarter, looking back and re figuring some stuff I feel like I have already overpaid. My question is, if I don’t pay for the jan quarter will I be penalized?

  • coffee6am

    I have an IRS automatic deduction payment plan to pay taxes from 2015 but want to pay using EFTPS for 2016 estimated taxes. Will my payment go to 2015 taxes or can I ensure it goes to 2016 estimated?