Don't Mess With Taxes

Millions of people will be celebrating on Monday, April 15. The arrival of Tax Day means they are done with dealing with the Internal Revenue Service for another year.

For many others, however, it's just the beginning of another round of collections.

The annual federal filing (and paying) deadline also is the start of the current year's estimated tax payment cycle.

Extra payments for certain income: The U.S. tax system is pay as earn. That's taken care via paycheck withholding if you're an employee.

But even if you have a job where income (federal and state, if applicable) tax is withheld, there are some instances where taxable income is not subject to withholding. This could be earnings from gig work or other self-employment endeavors; investment/capital gains payouts; prize or gambling winnings; or even Social Security and other pension benefits.

If you get any of this type of income, you must cover the due tax yourself, and in a timely, pay as you go fashion.

This typically is accomplished by making estimated tax payments.

Estimated tax timing: The first estimated tax deadline is the April 15, or later date if that falls on a legal holiday or weekend day.

The rest of this year's estimated taxes are due on the regular schedule shown in the table below.

Although the payments are referred to as quarterly estimated taxes, that simply means four of them. The estimated tax earnings periods and tax-due time frames don't fall along what we usually think of when we divide the calendar into quarters.

The Internal Revenue Service prefers that you guesstimate how much money subject to estimated tax you'll get during the full tax year, divide that total by four, and send those equal amounts on the four due dates.

However, the four equal installments method isn't required. In fact, the annualized income option is a good move for some to use in calculating estimated tax payments for people whose earnings not subject to withholding vary throughout the year. This means you pay the amount of estimated tax on the actual amount of earnings you made during the payment quarter.

True, this variable estimated tax payment method requires more record keeping and calculations, but it could help with cash flow. My post on annualized income estimated tax payments has more on this choice.

Ways to pay: Now that you know you must pay estimated taxes, and when to do so, here are the ways that the IRS will gladly take your money.

If you must make the first 2024 tax year 1040-ES payment next Monday, you have several payment options.

Paying electronically is the fastest and easiest way to meet your estimated tax payment deadline. Those options include —

• IRS Direct Pay. This option allows taxpayers to schedule a no-cost transfer directly from a checking or savings account in advance of the Jan. 16 deadline.
• IRS Online Account. This option allows taxpayers to view their payment history, pending or recent payments and other tax information. If you don't have an existing IRS username or an ID.me account, have your photo identification ready. More information about identity verification is available on the IRS.gov taxpayer account sign-in page.
• Electronic Filing Tax Payment System, or EFTPS. EFTPS is a free system which offers selections such as scheduling payments a year in advance, paying estimated tax payments and tracking and changing scheduled payments. However, you must have created an account before you can use it.
• Debit or credit card or digital wallet. This is fast, easy, and familiar to most of us. The three vendors the IRS has approved for 2024 payments are payUSAtax, Pay1040, and ACI Payments, Inc. Note, however, that the card processors (not the IRS) charge a fee for the service.
• IRS2Go. The IRS' mobile app gives you access to Direct Pay or credit/debit card payment options.

Using these electronic payment options ensures that a payment gets credited promptly. More information on other payment options is available at IRS.gov/payments.

If you're still at least a bit old-school, you can pay by phone by calling toll-free one of the IRS-approved debit or credit card service providers. To make a payUSAtax phone payment call 1-844-PAY-TAX-8 (1-844-729-8298). Pay1040's phone payment line is 1-888-PAY-1040 (1-888-729-1040). Phone payment via ACI Payments, Inc. is at 1-800-2PAY-TAX (1-800-272-9829). Again, each vendor charges a fee that varies by provider, card type, and payment amount.

Also, if you've signed up for EFTPS and want to pay by phone rather than using the website or don't have online access, call the system's toll-free tax payment number (800) 555-3453. It's available 24 hours a day, 7 days a week.

Checks still accepted: For those who are truly and totally old-school, you still snail mail the IRS a paper check or money order. I've done this when I didn't schedule a payment for whatever reason. OK, the reason was I was slow in transferring money to my checking account to pay my tax bill.

In that case, mailing your tax payment has an advantage. You meet your estimated tax obligation by simply getting the payment in the mail in time to get it postmarked by the due date. Just like when sending in your annual tax return, the postmark counts as timely filing.

The day or so it takes the voucher and check to get to the IRS should give your bank time to clear the transfer so that your check won't bounce.

If you do decide to mail your estimated tax payment, download the estimated tax package and include the appropriate payment voucher with your payment. Below is the voucher for the first 2023 tax year payment.

See more tax forms and more about them at Tax Forms 2024.

Make your check or money order payable to "United States Treasury," not the IRS. Write "2024 Form 1040-ES" and your Social Security number on your check or money order. If you are filing a joint estimated tax payment voucher, enter the tax identification number that you'll enter first on your joint return.

Enclose, but do not staple or attach your payment with the estimated tax payment voucher. And check the mailing addresses, based by your state of residence, at the back of the 1040-ES form to find the correct address to which to mail your payment.

Yeah, the IRS' check policies are pretty precise. You can see other IRS check writing rules in this post.

Penalties for not paying ES: If you're thinking of ignoring estimated taxes, think again.

Generally, if you owe tax of $1,000 or more when you file your annual tax return, you could face a penalty for underpaying your taxes.

And if that money was from sources not subject to withholding, you also could face late-payment fines for not remitting it during the proper estimated tax quarters.

If you have a paycheck paying job in addition to your side earnings, you could avoid estimated tax payments by upping your paycheck withholding so that it's enough to cover all the money you're making, on the job and from other sources.

More time for disaster area taxpayers: Finally, a few estimated tax payers get a reprieve. Because they live in areas that sustained damage from major natural disasters, they get more time to file their 2023 tax returns and make estimated tax payments.

That's the case, at the time I'm writing this post, in 10 states. Those states where at least some taxpayers get more time to file 2023 tax returns and 2024's first estimated tax payment are Alaska, California, Connecticut, Hawai'i, Maine, Michigan, Rhode Island, Tennessee, Washington, West Virginia.

If you live in one of these disaster areas, you can find more details about your new deadlines in my post April 15 is not Tax Day for taxpayers abroad and in 11 states.

I know, I hear all y'all tax-savvy, sharp-eyed ol' blog readers asking, "Can you count, Kay? Is it the 10 states you just named, or 11 states like in that post's headline?"

It's 11, but that entry on the more-time list is Massachusetts, which isn't on the tax-relief disaster list. Tax Day, which also means estimated Tax Day, in the Bay State is April 17 this year thanks to the Patriots' Day state holiday there, along with the April 16 Emancipation Day holiday in Washington, D.C. 

This two-day delay of tax filing (and paying) to April 17 also applies to all Maine taxpayers who aren't in a major disaster area, since Patriots' Day is an official holiday in the Pine Tree State, too.

Whatever your estimated tax deadline, just make sure you meet it, and pay the appropriate amount. If you don't, you could be in for a costly surprise on Tax Day 2025.

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