When it comes to filing taxes, many individuals are quick to rush through the process without considering the April 15 deadline for first-quarter estimated tax payments. These payments are essential for individuals who earn income from gig economy work, freelancing, small businesses, retirement, or investing, where there are no tax withholdings in place. If you anticipate owing at least $1,000 in taxes, it is crucial to make your first-quarter estimated payment for 2024 by April 15th.
One of the complexities of first-quarter estimated tax payments is that they coincide with federal tax due dates. This overlap can be particularly challenging for taxpayers, as highlighted by certified public accountant Tom Wheelwright, CEO of WealthAbility. Missing these payment deadlines can result in interest-based penalties, as emphasized by the IRS. The 2024 payment due dates are spread across the year, with deadlines on April 15, June 17, September 16, and January 15, 2025. Failure to adhere to these deadlines can lead to penalties that compound daily based on the current interest rate and balance due.
Determining the amount for quarterly estimated payments can be confusing for many individuals, acknowledge experts in the field. To simplify this process, certified financial planner Eric Bronnenkant, head of tax at Betterment, suggests using a “measuring stick.” Meeting the IRS’s “safe harbor” rules is essential to avoiding penalties. By paying at least 90% of the current year’s tax liability or 100% of the previous year’s taxes (whichever is smaller), taxpayers can stay compliant. For instance, dividing the previous year’s tax liability by four can help individuals meet the safe harbor rules for quarterly estimated payments.
Failing to adjust quarterly tax payments based on fluctuating income levels can result in unexpected tax liabilities at year-end. To prevent this situation, the IRS offers online payment options that streamline the process. By creating an IRS online account, taxpayers can conveniently make payments, track payment history, monitor pending payments, and more. It is essential to obtain confirmation of payment to ensure that transactions are completed successfully. For individuals without an IRS account, alternative online payment options such as IRS Direct Pay or the U.S. Department of the Treasury’s Electronic Federal Tax Payment System (EFTPS) are available for convenience.
Meeting first-quarter estimated tax deadlines is crucial for individuals earning income without tax withholdings. Failing to comply with these deadlines can lead to interest-based penalties that compound daily. By understanding the calculation of quarterly estimated payments and utilizing online payment options, taxpayers can avoid penalties and ensure tax compliance throughout the year.