Are you self-employed, working as an independent contractor or have a side job? Do you drive for Uber or Lyft, walk dogs, clean houses or do other tasks for a business that gives you a 1099? Do you receive rental income from renting a room, apartment or home?
If you answered yes to any of these questions, you may need to make estimated tax payments in order to avoid penalties for underpayment and a surprise tax bill when you file your return.
Our tax system runs on a pay-as-you-go basis throughout the year. If you are an employee, taxes are withheld from each paycheck throughout the entire year. If you are self-employed, an independent contractor or a worker in the sharing economy, you may have to make estimated tax payments throughout the year.
Estimated payments cover income tax and self-employment tax for the Social Security and Medicare systems. If you are in business for yourself or working as an independent contractor, you will owe self-employment tax even if you do not make enough to owe income tax.
If you expect to owe income tax and/or self-employment tax of $1000 or more when you file your return, you need to make estimated tax payments. If you do not make the required payments, you may have a surprise tax bill when you file your return, along with penalties for not paying estimated taxes.
The amount of estimated tax you must pay each quarter depends on the income you expect to earn and any credits you expect to receive that year. You can access a worksheet to calculate estimated tax payments at www.irs.gov/pub/irs-pdf/f1040es.pdf
You can also use your prior year tax return as a guide. To avoid underpayment penalties, you must pay at least 1) 90% of your taxes that will be due for the current year or 2) 100% of the prior’s year’s tax liability.
For example, a taxpayer who expects to owe $2000 in self-employment and income taxes for the tax year 2020 must pay $500 on April 15, 2020, June 15, 2020, September 15, 2020 and January 15, 2021.
The rules are different for people with adjusted gross income of more than $150,000 ($75,000 for married filing separate). In that case, you must pay at least 110% of last year’s taxes instead of 100% to avoid penalties. There are special rules for farmers and fisherman too. The IRS has more information to help you figure this out at www.irs.gov/payasyougo
Estimated taxes are generally due four times each year, on April 15, June 15, September 15 and the following Jan. 15.
For 2020, estimated tax payments are due:
1st payment: April 15, 2020
2nd payment: June 15, 2020
3rd payment: September 15, 2020
4th payment: January 15, 2021*
*If you file your tax return by January 31, 2021, and pay the remaining balance due with that return, you do not need to pay the 4th payment on January 15, 2021.
If you are a W2 employee with a side job, it may be easiest to have your employer withhold more taxes to cover the extra taxes you will owe on income from the side job. Otherwise, the IRS makes it easy to pay estimated taxes online, through their mobile app, in person, or even by phone.
Online: You can pay your estimated taxes online through Direct Pay. Go to www.irs.gov/payments and choose whether to pay with your bank account or a debit or credit card. Note that you may be charged a fee for using a debit or credit card.
Mobile app: You can also pay using your mobile device through the IRS2Go app.
By mail with a check or money order: Fill out the voucher in the Form 1040-ES and check page 5 of the publication for “where to send” by mail with your check or money order. Be sure to write your social security number or individual taxpayer identification number on your check or money order, along with “Form 1040ES” and the tax year (e.g., 2020).
If you live in Connecticut, you can send payments by mail to:
Hartford CT 06105
150 Court Street
New Haven, CT 06510
14 Cottage Place #239
Waterbury, CT 06702
761 Main Ave
Norwalk, CT 06851
915 Lafayette Blvd
Bridgeport, CT 06604
131 West St.
Danbury, CT 06810
Cash Payments in Person: If you need to pay in cash, you must first register online at www.officialpayments.com/fed. You can find official vendors who will receive cash for the IRS at this site.
Electronic Federal Tax Payment System (EFTPS): You can also make all your tax payments through EFTPS, the electronic federal tax payment system. EFTPS requires enrollment but allows you to schedule payments up to 365 days in advance and you can pay via internet or phone. To enroll or learn more, go to www.EFTPS.gov or call 1-800-555-4477 or 1-800-244-4829 (Espanol). If you are hearing or speech-impaired, call 1-800-733-4829 (TTY/TDD).
You may also need to pay estimated taxes to your state and should check with your state tax authority. In Connecticut, you can go to www.ct.gov/drs and choose “for individuals” and chose the option “file & pay online.”
If you need help determining if you need to pay estimated taxes or need help challenging a federal tax liability or resolving a federal tax debt, you may be eligible for free legal services from a low income taxpayer clinic (LITC) in your area. You can find locations by clicking on the map at https://taxpayeradvocate.irs.gov/about/litc
This FAQ sheet and other material on our website or in links or attachments is intended for informational purposes only and is not intended to serve as legal advice concerning a federal or state tax matter. In compliance with requirements imposed by the Department of the Treasury, please note that any information concerning taxes contained on our website (and any links or attachments) is not intended to be used and cannot be used by any taxpayer, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.