How to Make Estimated Tax Payments for 2024

The U.S. tax system is pay-as-you-go, requiring you to pay income tax as you earn it. While employer withholding handles this for many, if you receive income not subject to withholding, such as from self-employment or investments, you must make periodic payments to the IRS yourself. These payments are known as estimated taxes and are used to cover tax liabilities on income outside the standard withholding process.

Determining Your Requirement to Pay Estimated Taxes

The need to pay estimated taxes affects individuals with income sources not subject to withholding. This group includes freelancers, independent contractors, small business owners, investors, and retirees with substantial income from pensions or investments.

The Internal Revenue Service (IRS) sets monetary thresholds to determine this obligation. You must pay estimated taxes if you expect to owe at least $1,000 in tax for the 2024 tax year after subtracting any withholding and refundable credits. If your final tax bill, minus withholding, is less than $1,000, you are exempt from the requirement.

To avoid penalties, you must meet certain “safe harbor” rules set by the IRS that provide a target for how much tax to pay during the year. The first rule requires your total payments through withholding and estimated taxes to equal at least 90% of your tax liability for the current year, 2024. This method requires an accurate projection of your annual income and deductions.

An alternative rule allows you to base payments on your previous year’s tax liability. Under this provision, you can avoid a penalty by paying at least 100% of the tax shown on your 2023 tax return, as long as that return covered a full 12 months. If your Adjusted Gross Income (AGI) on your 2023 return was more than $150,000 ($75,000 if you were married and filed separately), you must pay at least 110% of your 2023 tax liability.

Calculating Your 2024 Estimated Tax Payments

To calculate your 2024 estimated tax payments, you will need to project your total financial picture for the year. The main tool for this is the worksheet in Form 1040-ES, Estimated Tax for Individuals, which guides you through estimating your income, deductions, and credits.

The calculation begins with estimating your total expected adjusted gross income (AGI) for 2024. This includes all your taxable income from sources such as self-employment earnings, interest, and dividends, minus specific deductions. Once you have an estimated AGI, you will subtract your anticipated deductions, either the standard deduction for your filing status or your itemized deductions. The result is your estimated taxable income.

Next, you will calculate the expected income tax by applying the 2024 tax brackets to your income. After determining the initial tax amount, subtract any tax credits you expect to qualify for, such as the child tax credit or education credits. The final figure, after accounting for any federal income tax you expect to be withheld, is your total estimated tax for the year.

You can then determine your required quarterly payment. The regular installment method involves dividing your total estimated tax by four and paying that amount by each due date. For individuals with inconsistent income, the annualized income installment method allows you to adjust payments each quarter to reflect your actual income earned during that period.

Payment Due Dates and Submission Methods

Once you have calculated the amount of your estimated tax payments, it is important to submit them by the specific deadlines set by the IRS. For the 2024 tax year, the year is divided into four payment periods, each with a corresponding due date.

• For income received from January 1 to March 31, the payment is due April 15, 2024.
• For income received from April 1 to May 31, the payment is due June 17, 2024.
• For income received from June 1 to August 31, the payment is due September 16, 2024.
• For income received from September 1 to December 31, the payment is due January 15, 2025.

The IRS offers several submission methods. The most direct electronic options are IRS Direct Pay, for payments from a checking or savings account at no cost, and the Electronic Federal Tax Payment System (EFTPS), which allows you to schedule payments in advance. You can also pay via debit card, credit card, or a digital wallet through an approved third-party payment processor, though these services charge a fee.

You can also mail a check or money order. When mailing a payment, you must include a specific payment voucher from Form 1040-ES to ensure it is credited correctly.

Understanding Underpayment Penalties

Failing to pay enough tax throughout the year via withholding and estimated tax payments can lead to an underpayment penalty. This penalty can be assessed even if you are due a refund when you file your annual tax return and is an interest charge on the amount you underpaid.

The IRS may calculate the penalty and send you a bill, or you can calculate it yourself using Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. This form helps you determine if you met one of the safe harbor exceptions or if you owe a penalty, and if so, the amount. Filing Form 2210 with your tax return is required if you use the annualized income installment method or wish to request a waiver.

In certain situations, the IRS may waive the underpayment penalty. A waiver may be granted if you failed to make payments because of a casualty, disaster, or other unusual circumstance. The penalty may also be waived for reasonable cause during the first two years after you retire (after reaching age 62) or become disabled, provided the underpayment was not due to willful neglect. To request a waiver, you must file Form 2210 and provide an explanation.