How To Pay Estimated Income Taxes - Library How To Pay Estimated Income Taxes

By Jonathan Weber,

While you reconcile your income tax every year on April 15th with the IRS and your state Department of Revenue, most employees actually pay income taxes year-round through tax withholding deducted from each month’s paycheck

For the majority of American taxpayers, the amount of money withheld from their paychecks over the course of the year is even more then they actually owe in income taxes. As a result, when they file their yearly income tax return, they receive a federal income tax refund from the IRS.

1. Who has to pay estimated income tax?

There are many taxpayers who, for various reasons, do not pay sufficient taxes through withholding to pay off their complete tax burden. These taxpayers are usually self employed, have a non-traditional job, or earn the majority of their income from non-wage sources like investment income.

Because the money these taxpayers earn isn’t subject to tax withholding by an employer, the taxpayer may be required to send a quarterly check to the IRS to cover taxes they would have otherwise paid through tax withholding.

If you earn income that isn’t subject to tax withholding, you can use the following criteria to determine if you have to pay estimated income taxes:

  1. Do you expect to owe more then $1,000 to the IRS when you file your income tax return in April?
    • YES – You are required to make estimated tax payments
    • NO – See step two
  2. Will the total tax withheld from your income this year equal 100% of the tax you paid last year, or at least 90% of your tax burden this year?
    • YES – You do not have to pay estimated income tax
    • NO – You are required to make estimated tax payments

2. How much estimated tax do I have to pay?

The amount you have to pay in estimated taxes over the course of the year must be at least 100% of what you owed the IRS last year, or 90% of what you will owe the IRS this year.

If your yearly income is variable and can’t be predicted easily, or if your income this year will be significantly higher then last year’s, you may prefer to use last year’s income to determine your estimated tax payments.

If you choose to use last year’s income, just divide your total tax liability from your most recent 1040 by four to get your quarterly income tax payment. If you prefer to pay based on this year’s income, multiply your estimated income tax liability by .9 and divide the result by four to determine your quarterly estimated tax payment.

3. When do I make estimated tax payments?

The IRS, and most states that collect estimated taxes, require that you pay on a quarterly basis. The IRS’s notion of quarterly, however, does not line up perfectly with the fiscal quarters used by most of the private sector. The schedule below shows the due dates for your four 2012 quarterly tax payments.

Estimated Income Tax Payment Schedule for 2012
1st Estimated Payment April 17th 2012
2nd Estimated Payment June 15th 2012
3rd Estimated Payment September 17th 2012
4th Estimated Payment January 15th 2013 1
Note: If any of these days falls on a weekend, the payment can be delayed until the 17th of that month
1 If you pay your income tax in full by January 31st, you can skip the final estimated tax payment.

4. How do I send my estimated tax payments to the IRS?

Just like your end-of-year tax payments, quarterly estimated tax payments can be paid with a check or money order through the mail or online through the IRS’s e-pay system.

If you choose to send your estimated tax payments through the mail, you must include a Estimated Tax Payment Voucher with your check or money order. A sheet of printable vouchers is included at the end of IRS Form 1040-ES.

Be sure to fill out your personal information on the payment voucher, and write your Social Security number on your check or money order to ensure your payment is credited to you.

The IRS has multiple processing centers for estimated tax payments, so you must send your payment to the IRS address assigned to your home state. Use this table to find the address you need.

If you live in: Send your estimated tax payments to:
Northeast: Connecticut, Delaware, District of Columbia, Maine, Maryland,Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island, Vermont. Internal Revenue Service
ATTN: Estimated Tax Payments
P.O. Box 37007
Hartford, CT 06176-0007 /td>
Mideast: Kentucky, Missouri, New Jersey, Tennessee, Virginia, West Virginia Internal Revenue Service
ATTN: Estimated Tax Payments
P.O. Box 970006
St. Louis, MO 63197-0006
Southeast: Alabama, Georgia, North Carolina, South Carolina Internal Revenue Service
ATTN: Estimated Tax Payments
P.O. Box 105225
Atlanta, GA 30348-5225
Gulf Coast: Florida, Loisiana, Mississippi, Texas Internal Revenue Service
ATTN: Estimated Tax Payments
P.O. Box 1300
Charlotte, NC 28201-1300
Midwest: Arkansas, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma, South Dakota, Utah, Wisconsin, Wyoming Internal Revenue Service
ATTN: Estimated Tax Payments
P.O. Box 802502
Cincinnati, OH 45280-2502
West Coast: Alaska, Arizona, California, Colorado, Nevada, Oregon, Washington Internal Revenue Service
ATTN: Estimated Tax Payments
P.O. Box 510000
San Francisco, CA 94151-5100
American residents of foreign countries, U.S. possessions, territories, and military service members with an APO or FPO address Internal Revenue Service
ATTN: Estimated Tax Payments
P.O. Box 1300
Charlotte, NC 28201-1300
Note: These addresses are only to be used for estimated tax payments, and do not accept tax returns. Only the USPS can deliver to post office boxes, so you cannot use a private carrier or courier service.

5. Important Facts About Estimated Taxes

  • If you underpay your estimated taxes (or don’t pay at all), you will be subject to a penalty and interest when you file your tax return in April
  • If you are self-employed, your estimated tax payments must also cover Social Security and Medicare payroll taxes
  • Late quarterly payments may be subject to a penalty. Payments must be postmarked by the due-date
  • If you have to pay federal estimated tax, your state may also require you to make estimated payments on your state income tax. Check with your state’s Department of Revenue for details

If you have any questions about estimated tax payments, you can contact the IRS toll-free tax hotline at 1-800-829-1040 .