The Ledger · Tax & money · Business
Quarterly taxes without the panic
Estimated payments are a habit, not a cliff. A simple rule keeps most people out of trouble.
When nobody withholds tax from your pay, the tax authority expects you to pay during the year. For federal income tax, those estimated payments are due on 15 April, 15 June, 15 September and 15 January for calendar-year taxpayers.
You do not have to predict your year exactly. A safe-harbor rule protects most people from an underpayment penalty if they pay at least 90 percent of this year’s tax, or 100 percent of last year’s tax. The second figure rises to 110 percent when last year’s adjusted gross income was above $150,000.
Self-employed people also owe self-employment tax, which covers Social Security and Medicare. It is calculated on your net earnings, and it is easy to forget when you set money aside.
A workable habit is a separate savings account and a fixed share of every payment moved into it the day the payment arrives. Adjust the share after your first quarter, when you can see real numbers.
States have their own rules and dates. This piece is general education, not advice for one person’s situation. Tax, our tax tool, works out a return and shows the estimate.