How to Withhold Your Own Taxes
If you have no employer to withhold federal taxes, then you're responsible for withholding your own.
When a significant natural disaster hits – such as a hurricane, earthquake, tornado, flood, wildfire, blizzard, or the like – the IRS will extend upcoming federal tax deadlines for affected taxpayers if a federal disaster is declared. The extended due dates apply to most federal tax returns and payments, including those for income taxes (including estimated tax payments), payroll taxes, and excise taxes. If you’re impacted by a natural disaster, check our IRS Disaster Relief page to see if you qualify for an automatic tax filing or payment extension.
Key Takeaways
- You need to determine if you're required to make estimated tax payments, especially if you owe $1,000 or more after withholdings and credits.
- Use Form 1040-ES to calculate your estimated tax payments based on your projected taxable income, deductions, and credits.
- The IRS has four estimated tax payment deadlines throughout the year.
- Avoid late-payment penalties by ensuring timely payments and accurate estimates, as penalties and interest can accrue on underpayments until they are paid.
Making estimated tax payments
Whether you work for an employer or are self-employed, you must make estimated tax payments during the year when your income exceeds certain levels. As an employee, you pay these estimated payments by having your employer withhold amounts from your paycheck. In that case, your employer sent your money to the IRS for you. However, if you have no employer to withhold federal taxes, then you will need to do this by making estimated tax payments.
Step 1: Determine if estimated tax payments are necessary
If the amount of tax you owe after reducing your total tax bill by the total amount withheld from your paycheck and refundable credits is less than $1,000; then you aren’t responsible for making estimated tax payments.
Generally, most taxpayers will avoid a penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
Step 2: Calculate the minimum estimated tax payment to make
If you determine that you need to make estimated tax payments, then you should obtain Form 1040-ES to calculate the amount of each payment. If you use tax preparation software, such as TurboTax, it will generate the form based on the information you provide. Essentially, the form calculates your payments using an estimate of your taxable income for the year.
Estimating your taxable income requires you to reduce your gross income by all deductions you anticipate claiming, and to reduce the amount of tax you will owe by the tax credits you are eligible for.
TurboTax Tip:
In the event of a significant natural disaster, the IRS may extend tax deadlines for affected taxpayers if a federal disaster is declared, which can apply to various tax payments, including estimated taxes.
Step 3: Make your payments on time
The IRS imposes four payment deadlines throughout the year. If you earn all of your income through self-employment, it’s more likely you will have to make four payments than an employee who has insufficient withholding. As a general rule, you don’t have to make your first estimated tax payment until you earn sufficient income that is taxable.
The first payment deadline covers income you earn between Jan. 1 and March 31. If you are employed during this period and have sufficient amounts withheld from your paycheck, you need not make an estimated payment for this period. However, if you start earning income as an independent contractor during the second period of April 1 through May 31, then your first payment may be due by the second deadline.
Step 4: Avoid late-payment penalties
When you fail to make estimated tax payments on time or underpay your tax, then the IRS penalizes you by imposing interest charges on your underpayment. For example, if you are required to make a $1,000 payment on April 15 but you only send the IRS $600, a penalty will accrue on your $400 underpayment each month until it is paid.
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