Professional Editions – Calculating and Paying Quarterly Estimated Taxes
Estimated tax payments are advance payments of federal and, where applicable, state income tax on income not subject to withholding. Common sources include self-employment income, interest, dividends, rental income, capital gains, pass-through income, and other forms of taxable income. Individual estimated tax obligations are generally calculated and remitted using Form 1040-ES, Estimated Tax for Individuals.
Practitioners should evaluate estimated tax requirements for clients who expect to have a tax liability after accounting for withholding and refundable credits. Generally, estimated tax payments are required when both of the following conditions apply:
- The taxpayer expects to owe at least $1,000 in tax after subtracting withholding and refundable credits; and
- Total withholding and timely estimated tax payments are expected to be less than the lesser of:
- 90% of the current-year tax liability, or
- 100% of the prior-year tax liability (increased to 110% for taxpayers with prior-year AGI exceeding $150,000, or $75,000 for married individuals filing separately).
NOTE: Taxpayers with no tax liability in the preceding year generally are not subject to estimated tax payment requirements. However, voluntary estimated payments may be advisable to prevent a significant balance due at filing.
Estimated Tax Payment Due Dates
For estimated tax purposes, the year is divided into four payment periods, each with a separate due date. Failure to make sufficient payments by the applicable due date may result in an underpayment penalty, even when the taxpayer ultimately qualifies for a refund upon filing.
The standard federal estimated tax payment schedule is:
- April 15
- June 15
- September 15
- January 15 of the following year
Taxpayers may either pay the full year’s projected estimated tax by the first installment date or make payments throughout the year according to the quarterly schedule. When a due date falls on a weekend or legal holiday, a payment is considered timely if made on the next business day.
If a client misses an installment payment, increasing subsequent payments may help reduce, though not necessarily eliminate, any underpayment penalty. Even when the client’s total annual tax is fully paid by year-end, penalties may still apply if the required payment thresholds were not met during each installment period. Consider whether the annualized income installment method may provide penalty relief for clients with uneven income patterns during the year.
Special Rules for Farmers and Fishermen
Taxpayers whose gross income from farming or fishing activities constitutes at least two-thirds of their total gross income for either the current or preceding tax year may qualify for special estimated tax rules.
Under these provisions:
- Only one estimated tax payment is generally required, due on January 15 of the year following the tax year; or
- The taxpayer may avoid the estimated tax penalty entirely by filing the return and paying the full tax liability by March 1 of the following year.
Set Up Estimated Tax Payments
- From within the client return, click Federal.
- On the right, click 20YY estimated tax payments.
- Complete the rest of the interview process.
- If you enter information to make estimated tax payments by electronic funds withdrawal while going through the Q&A interview questions, you must still mark each box to verify the quarterly payments when going through the e-filing steps.
The Estimated Tax Worksheet and payment vouchers are not transmitted with an e-filed return. The worksheet is for your records, and the Form 1040-ES vouchers are to be sent with payments (if mailed).
Form 1040-ES computes the amount of your required estimated tax payments, regardless of whether you select the worksheet calculation or to pay 100% of 20YY tax liability. If you wish to pay additional amounts, you can modify your total 20YY estimated tax during the interview.
Apply an Overpayment Toward Next Year’s Tax
If your return currently shows a federal refund amount, you can apply part or all that refund to next year’s tax liability. To apply an overpayment, follow the steps in the Apply Refund to Next Year Federal or State FAQ.
Payment Options
You can make payments using one of the following methods:
- Electronic Funds Withdrawal (EFW): Schedule up to four payments during e-filing. There is no additional cost to schedule estimated payments.
- Electronic Federal Tax Payment System (EFTPS): See EFTPS – Online Electronic Federal Tax Payment System for details.
- Other: See the IRS Payments page for details on other options.
ES Payments Already Made
To enter or review information for federal, state, or local estimated tax payments made for your current year tax return, and any refund applied from the prior year’s return, follow these steps:
- From within your TaxAct return, click Federal.
- Click the Federal, state and local estimated tax payments made for 20YY drop-down, then click Federal estimates.
- Complete the rest of the interview process.
Cancellation Requests
Once your return is accepted, the information related to your Direct Debit payment, such as account details, payment date, or amount, cannot be modified. If changes are necessary, you must cancel the transaction and select a different payment method.
- To cancel a payment scheduled through IRS e-file, call 1-888-353-4537 no later than 11:59 p.m. EST two business days before the scheduled date.
- If a payment is returned by your financial institution (e.g., due to insufficient funds, incorrect account details, or a closed account), the IRS will send “Letter 4870” to the address on file. This letter will explain why the payment couldn’t be processed and provide alternative payment options. If your financial institution cannot process the payment, you are responsible for making alternative arrangements and for any penalties or interest incurred.
- If there is an error in the withdrawn payment amount, contact your financial institution immediately.
- For further information, you can reach the IRS at 1-800-829-1040.
- If the Treasury causes an incorrect withdrawal from your bank account, they will return any improperly transferred funds.
- If the payment is for a state, you must contact the state tax agency to attempt to change your payment.
Removing Estimates
If you no longer want to have estimates generated or set up estimated tax payments during the e-filing steps, delete the estimated tax worksheet through the forms assistant.
- In dashboard navigation, go to Resources, scroll to the Assistants section, and select Forms Assistant.
- In classic navigation, click Tools > Forms Assistant.
- On desktop, click Forms and locate the federal form in the Forms Explorer.
Prior Year Estimates
Once the final filing version of the TaxAct software is released in January, you are only able to complete estimated tax information (or print vouchers) for next year’s return. For example, to calculate a 20XX estimated payment due January 15, 20YY (or print the voucher) use your prior year TaxAct program. You would then have the option to print the voucher to mail the payment to the IRS, or use EFTPS.