Estimated Tax Payments

The IRS has urged businesses to make estimated tax payments during the year to avoid owing money. Estimated tax is the method used to pay tax on income that is not subject to withholding. This will generally mean making quarterly estimated payments as income is earned or received during the year. The IRS coined the phrase “pay as you go, so you don’t owe”.

Individuals, including sole proprietors, partners and S corporation shareholders, generally must make estimated tax payments if they expect to owe tax of $1,000 or more when they file their 2019 tax return. Corporations generally must make these payments if they expect to owe tax of $500 or more on their 2019 tax return. Estimated tax is used to pay multiple taxes (e.g. self-employment tax and alternative minimum taxes) including income tax.

The IRS has published multiple worksheets, forms and publications to describe the processes of calculating estimated tax payments including: the worksheet in Form 1040-ES, Estimated Tax for Individuals, or Form 1120-W, Estimated Tax for Corporations, and Publication 505. The next quarterly estimated tax payment for 2019 is due June 17. So, if a taxpayer’s tax was more than zero in 2018, they may have to pay estimated tax.

The easiest way for an individual or business to make estimated tax payments is through the Electronic Federal Tax Payment System (EFTPS). The system allows an individual or business to access their payment history as well as make deposits. Publication 542, Corporations, provides further detail. Failing to pay or underpaying estimated tax may result in a monetary penalty. See Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts (or Form 2220, Underpayment of Estimated Tax by Corporations), for more on the penalty. Refer to the Form 1040 Instructions or Form 1120 Instructions for where to report the estimated tax penalty.