A common concern that I often find that clients have is whether or not they need to make federal estimated tax payments.
What are estimated payments? Estimated payments are quarterly payments that you make to pay your actual or projected tax liability for the current tax year. Estimated payments are needed when you have taxable income streams that are not subject to withholding such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards.
Generally, individuals, including sole proprietors, partners, and S corporation shareholders, have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
Corporations generally have to make estimated tax payments if they expect to owe a tax of $500 or more when their return is filed.
However, you don’t have to pay estimated tax for the current year if you meet all three of the following conditions:
- You had no tax liability for the prior year
- You were a U.S. citizen or resident for the whole year
- Your prior tax year covered a 12-month period.
You had no tax liability for the prior year if your total tax was zero or you didn’t have to file an income tax return.
There are four Estimated tax payments due dates for each tax year. The tax liability period covered and the due date for the payments are as follows:
Tax liability period Due Date
January 1 – March 31 April 15th (April 18th for 2023)
April 1 – May 31 June 15th
June 1 – August 31 September 15th
Sept. 1 – Dec. 31 January 15th of the year following the tax period
New Jersey also has its own estimated tax payment requirements, but that is a subject for another article