24 September 2009
Federal income is a pay-as-you-go system. Unless the total tax shown on the taxpayer’s return minus the amount paid through withholding will be less than $1000.00, the taxpayer generally must make quarterly estimated tax payments.

Who must make estimated payments

Taxpayers who have income that is not subject to withholding such as; self-employment, interest, dividends, rents, and alimony, must determine whether they are required to make estimated payments. In addition, estimated tax payments may be required on the taxable portion of Social Security benefits if the taxpayer did not elect voluntary withholding.

Increased withholding preferable

There are advantages to increased withholding rather than making estimated payments. The IRS assesses penalties for late payment, or underpayment, of estimated tax, even when the total amount paid for the year meets or exceeds the tax liability for that year. Withholding is credited ratable against each respective quarter’s required estimated tax payment even if the tax was not withheld evenly throughout the year. By increasing withholding later in the year, it may make up for a shortfall that would have otherwise resulted in an underpayment penalty from an earlier quarter.

How to increase withholding

To increase the amount of tax withheld from wages, the taxpayer files a new From W-4 with their employer. Taxpayers may also choose to have tax withheld from pension or annuity payments by filing a new From W-4P, from sick pay that is received from a 3rd party by filing From W-4S, or from certain government payments including Social Security payments by filing From W-4V.

When estimated payments are due

Payment 1. Due the 15th day of forth month during the tax year.
Payment 2. Due the 15th day of sixth month during the tax year.
Payment 3. Due the 15th day of ninth month during the tax year.
Payment 4. Due the 15th day of first month after tax year ends.

For an individual taxpayer with a calendar tax year payments are due: April 15th, June 15th, September 15th, and January 15th.

How to file estimated tax payments

1. Credit an overpayment on the previous year’s return to the current year’s estimated tax. If you ask that that an overpayment be credited to your estimated tax for the next year, the payment is considered to have been made on the due date of the first estimated tax installment (April 15th for calendar year tax payers).

2. Mail each payment with a payment voucher from Form 1040-ES to the appropriate address shown in the table. Make checks payable to “United States Treasury”.

3. Pay electronically using the Electronic Federal Tax Payment System (EFTPS). For EFTPS information call 1-800-316-6541 for individuals, 1-800-555-4477 for businesses, or log on to www.eftps.gov.

4. Use electronic funds withdrawal if Form 1040 is filed electronically. Taxpayers may make estimated tax payments when they electronically file their Form 1040 and authorize an electronic funds withdrawal from a checking or savings account. This election can be made regardless if there is a balance due in the previous year. Do not send Form 1040-ES payment voucher when an estimated tax payment by electronic funds withdrawal is scheduled.

5. Pay by credit card using a pay-by-phone system or the Internet. American Express, Discover, MasterCard, or Visa credit cards may be used to make estimated tax payments. Currently the IRS has contracts with two companies to accept credit and debit card payments from both electronic and paper filers. Each company offers both phone and Internet payment services and each charge a convenience fee for the service. Fees are based on the amount of the tax payment and may vary between companies. The two companies are:


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Topic: Advice