It doesn’t feel like it could be September already, but it is. And you know what that means: estimated payments are now due. The deadline for making your third quarter estimated tax payments for 2020 is September 15.
Who Needs To Make Estimated Payments?
Generally, you should make estimated tax payments if you are not subject to withholding. Realistically, this means that folks who rely on income reported on a Form 1099 (like self-employment income, interest, dividends, and retirement income) are most likely to be responsible for estimated tax. If you’re self-employed, a gig economy worker, a retiree with a pension or other income, or a partner in a partnership or LLC, this likely applies to you.
You will need to make estimated payments if you:
- You expect to owe at least $1000 in tax for the 2020 tax year after subtracting your withholding and credits.
- You expect your withholding and credits to be less than the smaller of 90% of the tax to be shown on your 2020 tax return or 100% of the tax shown on your 2019 tax return.
Who Might Get A Break?
Those are the general rules. However, special rules apply to some groups of taxpayers, like farmers, fishermen, and victims of natural disasters, those who recently became disabled, recent retirees and those who receive income unevenly during the year. You can find out more in Publication 505, Tax Withholding and Estimated Tax (downloads as a PDF).
How Can You Make a Payment?
To figure the amount of your estimated tax, you can use form Form 1040-ES, Estimated Tax for Individuals (downloads as a PDF).
You can write a check or IRS pay electronically. You can schedule tax payments up to 30 days in advance with Direct Pay or up to 365 days in advance with the Electronic Federal Tax Payment System (EFTPS).
What Happens If You Don’t Make Your Payment On Time?
Don’t be too casual about your payments. If you do not pay enough tax by the due date for each quarter, you may be charged a penalty even if you are due a refund when you file your income tax return (nice, huh?).
If you are subject to a penalty for not making enough estimated tax payments throughout the year, you can figure the penalty by using federal form 2210 (downloads as a PDF).
A good example of when a form 2210 comes in handy is when your income is uneven throughout the year; for example, instead of receiving a regular paycheck every other week, the bulk of your income comes in summer due to seasonal employment. When this happens, your estimated tax payment is figured at the end of each period based on a reasonable estimate of your income, deductions, and other items from the beginning of the tax year through the end of the period. While this method can save you from unwanted penalties, it can also be tricky.
You will not file form 2210 with your return unless the instructions on the form say as much. Typical situations that would require the filing of Form 2210 include a request for a waiver of part or the entire penalty. There is an exception to this rule for weather-related issues: if you lived in a federally declared disaster area and were granted a break on making estimated payments, you do not have to do anything special and you do not need to file form 2210. The IRS will automatically identify taxpayers located in a covered disaster area and will apply the appropriate penalty relief. If you still owe a penalty after the waiver is applied, the IRS will send you a bill.
What If You Screw Up?
If you miss a payment, there’s no need to panic. Just pay when you can. The penalty is worth, roughly, the unpaid interest on the estimated payment.
Your fourth estimated tax payment for 2020 is due January 15, 2021.