Do I Owe Quarterly Estimated Tax Payments?

Many people have questions about estimated tax payments. Who must make these payments? How are they calculated? When are they due?

Let’s start with the situation most people are familiar with when the taxpayer is an employee. As a W-2 employee, the employer will withhold taxes from the employee’s wages, bonuses, and commissions. The amount the employer withholds depends on the amount of wage earned and the information the employee entered on the Form W-4. This form of withholding helps the employees pay their portion of the tax due with each paycheck, as they earn their income.

With self-employed individuals it is not done automatically but still needs to be done. Thus, the quarterly estimated taxes. These quarterly tax payments are due throughout the year, with the due dates being:

(1) April 15,

(2) June 15,

(3) September 15 and,

(4) January 15 of the next year

Now that we know when to make the payments, how do we know who owes estimated tax payments and how to calculate what they owe? For those whose prior year’s tax return had Adjusted Gross Income (AGI) below $150,000 the required estimated payments can be calculated based on either 1,) 90% of the tax shown on that return or 2) 100% of the tax shown on the prior year’s tax return. If this prior year reported an AGI above the $150,000 amount the estimated payment can be based on the lesser of 1) 90% of the tax for the current year or 2) 110% of the tax shown on the tax from the prior taxable year.