When Are Quarterly Taxes Due?
While individuals who work for companies traditionally have taxes withheld from their paychecks, independent contractors and those who subsist on investment income should proactively pay estimated taxes. Payments are typically made incrementally, on the following quarterly tax dates:
|Due Dates for Estimated Taxes|
|Payment Period||Due Date|
|Jan. 1 to March 31||April 15|
|April 1 to May 31||June 15|
|June 1 to Aug. 31||Sept. 15|
|Sept. 1 to Dec. 31||Jan. 15 of the following year|
If a due date falls on a weekend or legal holiday, then payments must be issued on the next business day. For 2021 taxes, this is only the case for the fourth payment, as Jan. 15, 2022, falls on a Saturday. As Jan. 17, 2022, is Martin Luther King Day, the fourth payment deadline gets booted to Jan. 18, 2022.
The Internal Revenue Service (IRS) extended the 2020 federal tax filing date for individuals until May 17, 2021, due to the coronavirus pandemic—versus the previous deadline of April 15, 2021. However, this does not apply to estimated tax payments.
The 2020 federal individual and business tax filing deadline extension to June 15, 2021, for states affected by the February winter storms (Texas, Oklahoma, and Louisiana), does include an extension for estimated tax payments. Estimated tax payments due on or after Feb. 11, 2021, and up to June 15, 2021, can now be paid on or before June 15, 2021.
The 2020 federal tax filing deadline delay until May 17, 2021, does not include an extension for estimated taxes. However, the extension to June 15, 2021, for those affected by the February 2021 winter storms (Texas, Oklahoma, and Louisiana), does include a delay for estimated taxes.
Bear in mind that those who file for personal income tax extensions must still adhere to the quarterly payment deadlines. Furthermore, even though you may have paid the first installment of estimated taxes for 2021 on the same day that you filed your 2020 tax return, these are entirely separate actions.
- While individuals who work for companies traditionally have taxes withheld from their paychecks, independent contractors and those who subsist on investment income should proactively pay estimated taxes.
- Estimated taxes are paid on a quarterly basis, with payment deadlines being April 15, June 15, Sept. 15, and Jan. 15 of the following year.
- When a due date falls on a weekend or legal holiday, payments are due on the next business day.
Calculating Payments: The $1,000 Rule
Those who project their 2021 tax bill to be under $1,000, after taking into account any withholding and refundable tax credits such as earned income credits and premium tax credits, do not need to bother with estimated taxes. All others should employ one of the following two approaches:
- Pay estimated taxes to avoid or minimize penalties.
- Increase withholding to cover projected taxes.
Employed individuals should increase withholding by filing a new Form W-4 with their employers. Those receiving pension or annuity income should file Form W-4P with the plan administrators or other parties who pay out the benefits. Individuals may opt for voluntary withholding on payments such as Social Security benefits and unemployment benefits by filing Form W-4V.
It can be difficult to project total taxes at the start of the year. Fortunately, the following safe harbor provisions can help individuals avoid penalties for inaccuracy:
- Current Year: If the estimated taxes that you pay turn out to be at least 90% of your final bill for 2021 and you made payments on time, then no penalties will apply.
- Prior Year: If you use your 2020 tax bill as a barometer for your 2021 liability, then you are likewise sure to be penalty-free as long as the taxes you pay are at least 100% of your 2020 bill. However, if the adjusted gross income (AGI) for 2020 was more than $150,000 ($75,000 for those who are married and filing separately), then the 2021 payments must be at least 110% of the 2020 bill. It should be noted that different rules apply to farmers and fishermen.
If your income changes dramatically during the year, then you can adjust the remaining estimated tax payments accordingly. For example, if you lose your job midyear, then you may reduce the rest of your estimated tax payments for 2020 to avoid or minimize overpayment.
If you have income for which withholding is done alongside independent contractor income or investment income, then you can increase the amount of your withholding in lieu of paying estimated quarterly taxes.
What’s New for 2021 Taxes
When using 2020’s tax bill to project 2021’s liability, take the following adjustments into account:
- Changes in Circumstances: Will a marriage or divorce cause changes to your filing status and the associated tax rates? Are you expecting a child who will result in a child tax credit? Will a new home purchase entitle you to added deductions for mortgage interest and real estate taxes?
- Inflation Adjustments: Dozens of tax breaks are adjusted annually for inflation, such as the IRS standard mileage rates. These may result in less tax liability, even if income remained consistent from 2020 to 2021.
- New Tax Rules: The 2017 Tax Cuts and Jobs Act (TCJA) significantly altered the tax rules and will have the following continued effects through 2025:
- The standard deduction has essentially been doubled.
- The personal exemption is no more.
- Significant personal income tax bracket changes gave taxpayers at both ends of the spectrum a significant tax cut, with smaller cuts for those in between.
- A slew of miscellaneous deductions were jettisoned, including expenses related to job relocation (except for active-duty military who relocate due to a military order).
- 2021 American Rescue Plan Changes: As part of the third stimulus package, the American Rescue Plan Act that was signed into law on March 11, 2021, the 2021 tax year will see key changes:
- The maximum earned income credit (EIC) for 2021 will be $1,502, previously capped at $543 for childless households. The law also expands eligibility for childless households.
- For unemployment income received in 2020, up to $10,200 for individuals and $20,400 for married couples filing jointly is made tax-free at the federal level as long as your adjusted gross income doesn’t exceed $150,000. If you filed your tax return early, then the IRS will adjust it automatically. That may not be the case for your state, so be sure to review your state return. To see if your state conforms to these rules, check out this list.
- The Affordable Care Act (ACA) Premium Tax Credit expands the credit offered to those purchasing insurance via the Health Insurance Marketplace.
- Child and dependent care tax credit changes have been made for 2021. The credit, originally capped at 35% of eligible expenses up to $2,100, is now capped at 50% of eligible expenses up to $4,000 for one qualifying individual and $8,000 for two or more qualifying individuals. The law also makes the credit entirely refundable.
- The child tax credit is fully refundable, and the caps move up to $3,000 for children from 6 to 17 years old and $3,600 for those under age 6.
Note that the investment income limit for 2021 has been raised from $3,650 or less to $10,000 or less. This $10,000 figure will be pegged to inflation and adjusted accordingly every year going forward. This is a permanent change as part of the American Rescue Plan Act.
The Bottom Line
While estimating taxes isn’t an exact science, coming close to the correct amount will help individuals avoid penalties if they’re mindful of the quarterly deadlines. Finally, it’s important to consult tax professionals when questions arise about difficult issues.
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