Do quarterly tax payments apply to you?

If you're a freelancer, small business owner, or anyone else who earns non-wage income, you may need to make estimated tax payments every three months. This is because the IRS requires you to pay taxes on any qualifying income that wasn't subject to federal withholding. Even if you earn all your taxable income through wages, you may still need to make quarterly payments under certain circumstances.

Understanding who is responsible for paying these taxes and how they operate is crucial, as failing to do so can result in a significant penalty.

Who owes quarterly tax payments?

You must pay taxes as you earn income, whether through withholdings from your W-2 or through quarterly estimated payments for other types of taxable income.

If you receive any of the following types of income, you may be required to make estimated tax payments according to the IRS:

• interest
• dividends
• alimony
• capital gains (from sales of stocks or other assets)
• prizes and awards
• self-employment income

If you are a self-employed individual and anticipate owing $1,000 or more in taxes, you should consider paying estimated taxes regularly to cover not only income tax but also self-employment tax and alternative minimum tax.

If you owe $1,000 or more in federal income taxes (after accounting for withholding and refundable credits), you are subject to estimated taxes.

If your withholding and refundable credits do not cover at least 90% of your tax liability for the current year or 100% of your liability for the previous year (110% for higher-income taxpayers) — whichever is smaller — you must pay estimated taxes.

When are quarterly payments due?

The IRS outlines that a year consists of four payment periods, with the following quarterly payment due dates: April 15, June 15, Sept. 15, and Jan. 15. If a payment date falls on a weekend or holiday, the deadline is the next business day.

In 2024, the due dates are:

• For the income earned from September 1 to December 31, 2023, the payment date is January 16.
• The income earned from Jan. 1 to March 31, 2024, will be reported on April 15, 2024.
• For the income earned from April 1 to May 31, 2024, the payment date is June 17, 2024.
• The income earned from June 1 to Aug. 31, 2024, will be reported on Sept 16, 2024.

How to estimate quarterly tax payments

There are several ways to determine your quarterly payments.

To estimate your quarterly tax payments, look at your taxable income from the previous year and divide it by four.

If your income fluctuates, you can estimate your tax bill at the end of each quarter based on your earnings for that period. This means that your payment amounts will differ throughout the year.

How to make quarterly tax payments

The 1040-ES provides comprehensive guidance and can assist you in determining your payment calculations.

There are a few ways you can pay your estimated taxes, including:

• Sending estimated tax payments by mail with Form 1040-ES
• Paying online on the IRS website
• Using IRS2Go, the official mobile app for the IRS
• The Electronic Federal Tax Payment System (EFTPS) allows you to make all of your federal tax payments, including installment agreement payments and federal tax deposits.

You can track your estimated tax payments by accessing your payment history through EFTPS or checking your tax records in your IRS online account. Remember to keep records of these payments as you'll need to report them when filing your personal tax return, with the total amount going into line 26 on Form 1040.

Tax software can simplify dealing with quarterly payments for self-employed filers. TurboTax's Premium plan can help identify industry-specific deductions and ensure accurate information is filled out. Additionally, the Live Assisted option provides unlimited tax advice from a tax expert.

With TaxSlayer's Self-Employed tier, you can receive tax payment reminders and print vouchers to stay on top of your quarterly payments.

What happens if you miss a quarterly estimated tax payment

If you fail to pay your estimated taxes on time or in full, the IRS may impose a penalty. The longer you go without payment, the more you owe. The penalty is 0.5% of the unpaid taxes for each month or part of a month you don't pay, up to 25% of your unpaid taxes. Additionally, the IRS charges interest on penalties, which increases the amount you owe. The interest rates are set quarterly.

To avoid penalties from estimated payments, it's crucial to stay on top of your quarterly tax obligations. If you're self-employed or have other income that requires estimated payments, penalties can quickly accumulate. To avoid this, consider working with a tax professional to help you determine how much you owe and answer any questions you may have.

Why trust CNBC Select?

At CNBC Select, our goal is to deliver top-notch service journalism and in-depth consumer advice to our readers, enabling them to make well-informed decisions when it comes to their finances. Each tax guide we produce is the result of thorough reporting by our team of expert writers and editors, who possess extensive knowledge of tax software products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content independently, without any input from our commercial team or external third parties. We uphold the highest journalistic standards and ethics in everything we do.

Stay up to date with CNBC Select's comprehensive coverage of credit cards, banking, and money by following us on TikTok, Facebook, Instagram, and Twitter.