~ from Internal Revenue Service
WASHINGTON — The Internal Revenue Service reminds all businesses, including self-employed and gig workers, to make estimated tax payments quarterly, and that making them electronically is fast, easy and safe.
During National Small Business Week, May 1 to 7, the IRS is highlighting tax benefits and resources tied to the theme for this year’s celebration: “Building a Better America through Entrepreneurship.” Paying estimated tax payments quarterly throughout the year is important for business owners.
Individuals and businesses alike are required to pay taxes as income is earned or received throughout the year, either through withholding or estimated tax payments. That’s why those who are self-employed or in the gig economy usually need to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.
If a taxpayer doesn’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty. They also may be charged a penalty if estimated tax payments are late, even if the taxpayer is due a refund when they file their tax return. However, generally, paying quarterly estimated taxes will lessen or even eliminate any penalties.
Estimated tax requirements are different for farmers, fishers and certain higher income taxpayers. In addition, special rules apply to some groups of taxpayers, such as casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year. Publication 505, Tax Withholding and Estimated Tax, provides more information about these special estimated tax rules.
Who must pay estimated tax
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 their return is filed. Corporations generally must make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
Taxpayers may have to pay estimated tax for the current year if their tax was more than zero in the prior year. See the worksheet in Form 1040-ES, Estimated Tax for Individuals, or Form 1120-W, Estimated Tax for Corporations, for more details on who must pay estimated tax.
Who does not have to pay estimated tax
Self-employed people and gig workers who also receive salaries and wages from an employer can generally avoid having to pay estimated tax by asking their employer to withhold more tax from their paycheck. This usually requires the filing of a new Form W-4, Employee’s Withholding Certificate, with the employer. A special line on Form W-4 allows a taxpayer to enter an additional amount to be withheld.
Taxpayers receiving a paycheck can check the Tax Withholding Estimator on IRS.gov to determine if the right amount of tax is being withheld from their paycheck.
Also, individuals don’t have to pay estimated tax for the current year if they meet all three of the following conditions:
- No tax liability for the prior year,
- U.S. citizen or resident for the whole year and
- The prior tax year covered a 12-month period.
An individual has no tax liability for the prior year if their total tax was zero or they didn’t have to file an income tax return. Additional information on how to figure estimated tax is available in Publication 505, Tax Withholding and Estimated Tax.
How to figure estimated tax
Individuals, including sole proprietors, partners and S corporation shareholders, generally use Form 1040-ES, Estimated Tax for Individuals, to figure estimated tax.
To figure estimated tax, individuals must figure their expected adjusted gross income, taxable income, taxes, deductions and credits for the year. When figuring estimated tax for the current year, taxpayers will often find it helpful to use income, deductions and credits from the prior year as a starting point.
Corporations generally use Form 1120-W, Estimated Tax for Corporations, to figure estimated tax.
When and how to pay estimated tax
For estimated tax purposes, the year is divided into four payment periods. However, some taxpayers may find it easier to pay estimated taxes weekly, bi-weekly or monthly. Alternative payment periods are allowed if enough tax is paid in by the end of the quarter.
Using an electronic payment option available on irs.gov/payments is the easiest way for individuals, small businesses, self-employed individuals and gig workers to pay federal taxes. It’s fast, easy and secure.
- Taxpayers can use the Electronic Federal Tax Payment System for all their federal tax payments, including federal tax deposits, installment agreement payments and estimated tax payments. In addition, by using the EFTPS, taxpayers can access a history of their payments, so they know how much and when the payments were made.
- Individual Taxpayers can create an IRS Online Account to make their estimated tax payments. Using their account, taxpayers can see their payment history, any pending payments and other useful tax information.
- Individual taxpayers can also make an estimated tax payment by using IRS Direct Pay.
- Individual and Business taxpayers can also make an estimated tax payment by using debit, credit card or digital wallet.
The 2022 Form 1040-ES, Estimated Tax for Individuals, can help taxpayers estimate their first quarterly tax payment. While electronic filing is strongly encouraged, taxpayers may also send estimated tax payments with Form 1040-ES by mail.
Corporations must deposit payments using EFTPS. Additional information is available in Publication 542, Corporations.
24/7 help at IRS.gov
Small business owners, self-employed individuals and gig workers will find valuable resources at IRS.gov available 24/7. The resources include publications, forms, tax products and tips to help small business owners avoid tax troubles and succeed.
The IRS is also reaching out to taxpayers in other languages through online resources for small businesses and individuals. The IRS has posted translated tax resources in 20 languages on IRS.gov. For more information see We Speak Your Language.
- Small Business Tax Workshop: Eight interactive lessons designed to help new small business owners learn their tax rights and responsibilities. (The workshop is available in English, Spanish, Chinese-Simplified, Chinese-Traditional, Korean, Russian, Vietnamese and Haitian Creole.) More information about the workshop is available on the IRS YouTube channel.
- Self-Employed Individuals Tax Center: A resource for sole proprietors and others who are in business for themselves. This site has many useful tips and references to tax rules a self-employed person may need to know. (The Center is available in English, Spanish, Vietnamese, Chinese (Traditional), Chinese (Simplified), Korean, Russian and Haitian-Creole.)
- Small Business and Self-Employed Tax Center: Features links to a variety of useful tools, a downloadable tax calendar and common forms with instructions. (The Center is available in English, Spanish, Vietnamese, Chinese (Simplified), Chinese (Traditional), Korean, Russian and Haitian Creole.)
- E-News for Small Businesses: A free electronic mail service that offers tax information for small business owners and self-employed individuals, including reminders, tips and special announcements.
- Gig Economy Tax Center: Helps people quickly find answers to tax questions, as well as helpful tips and tax forms for business taxpayers. (The Center is available in English, Spanish, Vietnamese, Chinese (Simplified), Chinese (Traditional), Korean, Russian and Haitian Creole.)
- Social media channels: Information for small businesses is also available through various IRS social media channels, including tax tips and other resources.