How Do I Calculate Estimated Tax Payments? Understanding Estimated Taxes

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Basics of Estimated Taxes

When calculating your estimated taxes, start by using your previous year’s total tax liability. Then adjust it upward or downward depending on whether your income is increasing or decreasing. You need to consider other factors too, like whether you qualify for new tax credits.

You may have to pay estimated tax for the current year if your tax was more than zero in the prior year. See the Form 1040-ES worksheet for more details on who must pay estimated tax. You can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.

Interest compounds daily and typically gets added to any unpaid tax from when the payment was due.

If you expect to owe over $1,000 in federal taxes, you may need to make quarterly payments. If your federal income tax withholding plus any timely estimated taxes you paid is at least 90 percent of the total tax you’ll owe this year, you likely won’t need to.

W-2 workers whose tax liability isn’t fully covered by withholding may need to pay estimated taxes too. In 2024, estimated payments are due January 16th, April 15th, June 17th, and September 16th.

If you have a job that withholds taxes from your paychecks, that money counts toward your estimated taxes. For example, if for each quarter you need to pay $4,000 but your employer withholds $2,500, you’ll need to pay $1,500 estimated.

By staying organized and seeking help when needed, taxpayers can manage their estimated payments effectively.

Calculating Estimated Taxes

To calculate your estimated tax payments, look at last year’s return to find your total tax liability. Then subtract any withholding you expect to pay or have paid for this year. You can use last year’s withholding amount if it’ll be about the same.

Quarterly Payments and Deadlines

  • W-2 workers may need to pay estimated tax if withholding doesn’t fully cover liability.

  • Quarterly payments are due:

    • January 16
    • April 15
    • June 17
    • September 16

  • Count withheld taxes towards estimated taxes. If short each quarter, supplement the difference.

By staying organized and seeking help to effectively manage estimated payments, taxpayers can keep on top of their tax obligations.

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