The IRS is reminding taxpayers who pay estimated taxes that the deadline to submit their third quarter payment is Sept. 15, 2023.
Taxpayers not subject to withholding may need to make quarterly estimated tax payments. Taxpayers such as gig workers, sole proprietors, retirees, partners and S corporation shareholders generally must make estimated tax payments if they expect to have a tax liability of $1,000 or more when they file their return.
A general rule of thumb is that taxpayers should make estimated tax payments if they expect:
- To owe at least $1,000 in taxes for 2023 after subtracting their withholding and tax credits.
- Their withholding and tax credits to be less than the smaller of:
- 90% of the tax to be shown on their 2023 tax return or
- 100% of the tax shown on their complete 12-month 2022 tax return.
More taxpayers will receive 1099-Ks for 2023
Taxpayers who were paid over $600 by payment apps and online marketplaces or received any amount by payment cards could receive a Form 1099-K, Payment Card and Third Party Network Transactions, starting January 2024, for payments received in 2023. This includes anyone with a side hustle, sole proprietors, and anyone selling goods and services online. It’s important to remember that taxpayers should report their income, unless it’s excluded by law, regardless of whether they receive a Form 1099-K or any other third-party reporting document. The 1099-K reporting threshold for third party reporting doesn’t change what counts as income or how tax is calculated. Find more information at Understanding Your Form 1099-K.
Figuring estimated tax
To figure estimated tax, taxpayers must calculate their expected Adjusted Gross Income (AGI), taxable income, taxes, deductions and credits for the year. To figure 2023’s estimated tax, it may be helpful to use income, deductions and credits from 2022 as a starting point.
Taxpayers can use the tools on IRS.gov to check if they are required to pay estimated taxes. The Tax Withholding Estimator, the IRS Interactive Tax Assistant and the worksheet in Form 1040-ES, Estimated Tax for Individuals all offer clear step-by-step instructions.
Avoid a penalty for underpayment
Taxpayers who underpay their taxes may have to pay a penalty regardless of whether they paid through withholding or through estimated tax payments. Late and skipped estimated tax payments can incur penalties even if a refund is due when a tax return is filed.
Taxpayers should use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if they owe a penalty. Taxpayers can also request a waiver of the penalty if they underpaid because of unusual circumstances and not willful neglect.
Special rules apply to some groups of taxpayers such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year.
Paying the easy way
An electronic payment is the easiest, fastest and most secure way to make an estimated tax payment. The Payments page on IRS.gov provides complete tax payment information, how and when to pay, payment options and more.
Taxpayers can also pay using a debit card, credit card or digital wallet. Taxpayers should note that the payment processor, not the IRS, charges a fee for debit and credit card payments. Both Direct Pay and the pay by debit card, credit card or digital wallet options are available online at IRS.gov/payments and through the IRS2Go app.
Taxpayers can also use the Electronic Federal Tax Payment System (EFTPS) to make an estimated tax payment. Payment by check or money order made payable to the “United States Treasury” is also an option.
The IRS encourages taxpayers earning income not normally subject to withholding to consider making estimated tax payments throughout the year to stay current and avoid a surprise at tax time.
The fourth and final estimated tax payment for tax year 2023 is due on Jan. 16, 2024.