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Quarterly Estimated Tax Payments
Posted By Jim On 02/14/2012 @ 7:12 am In Personal Finance | 7 Comments
The tax system in the United States is often called a “pay as you go” system because you are expect to pay taxes as you earn your income. For most W-2 employees, your taxes are withheld with every paycheck and this requirement is easy to satisfy. If you are a freelancer or otherwise earn income from other means throughout the year, you have several options when it comes to keeping with the “pay as you go.” If you have a job that withholds, you can adjust your withholding so that extra income is withheld for taxes to cover your freelance income. If you’re a 100% freelancer or a small business owner, you’ll have to pay quarterly estimated tax payments.
Quarterly estimated tax payments aren’t as scary as they sound but there are specific forms you need to include, the Form 1040-ES .
As you’d expect, there are four estimated payment due dates, here they are for 2013:
Each one covers a slightly different time period so you’ll have to calculate your taxes carefully (I don’t know why the 2nd payment is due in June instead of July). Officially, the dates are April 15, June 15, September 15, and January 15 but as is the case with the tax filing date , the due date shifts for weekends and holidays.
One point to remember about estimated tax payments is the safe harbor rule. The IRS understands that sometimes it’s difficult to estimate your taxes so they offer up the safe harbor rule to protect you from penalties, should you underpay your actual tax liability. If you pay at least your previous year’s liability or pay within 90% of your actual liability, you won’t be penalized for underpayment. So if your total taxes paid last year was $10,000, if you pay at least that much this year, through withholdings and estimated payments, the IRS will not penalize you if you underpay your actual liability. State safe harbor rules may differ (Maryland, for example, requires you to pay at least 110% of the previous year’s liability).
Lastly, it’s also important for you to look up the quarterly estimated tax payment schedules and forms for your state, which will usually, but not always, mirror that of the federal dates.
(Photo: alancleaver )
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 Form 1040-ES: http://www.irs.gov/pub/irs-pdf/f1040es.pdf
 tax filing date: http://www.bargaineering.com/articles/taxes-due-april-17-2012.html
 alancleaver: http://www.flickr.com/photos/alancleaver/4121400351/sizes/m/in/photostream/
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