What Are Estimated Taxes and Who Needs to Pay Them?

Wait, What Are Estimated Taxes and Do I Actually Have to Pay Them?

Imagine this: you're a freelance graphic designer, finally doing what you love and working from home. You land a big project, and the client sends you a hefty check. You're thrilled! But then, a few months later, tax season rolls around, and you realize you owe a significant amount in taxes – taxes you didn't anticipate because they weren't withheld from your payments. This is where understanding estimated taxes becomes crucial as determining What Estimated Taxes Are and Who Needs to Pay Them.

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What Are Estimated Taxes?

Estimated taxes are used to pay income tax, self-employment tax, and alternative minimum tax ¹. In the United States, taxes operate on a pay-as-you-go system ². This means that you're expected to pay taxes on your income as you earn it throughout the year, not just in one lump sum when you file your tax return. When you work for an employer, taxes are typically withheld from each paycheck. However, if you're self-employed, a freelancer, an investor, or have other sources of income where taxes aren't automatically withheld, you'll likely need to pay estimated taxes ¹. This includes income from sources such as:

• Self-employment (freelancer, independent contractor, small business owner, etc.)
• Interest and dividends from investments
• Alimony
• Rent
• Gains from the sale of assets (like stocks or real estate)
• Prizes and awards ¹

One way to potentially avoid paying estimated taxes is to adjust your W-4 form with your employer. This form allows you to increase the amount of taxes withheld from your paycheck, which can cover the taxes owed on other income sources ¹. However, this option may not be suitable for everyone, especially if your income from other sources fluctuates significantly.

Who Needs to Pay Estimated Taxes?

While the specific requirements for paying estimated taxes can vary, you'll generally need to pay them if you expect to owe $1,000 or more in taxes when you file your tax return ¹. Here's a table summarizing who might need to pay estimated taxes:

When Are Estimated Taxes Due?

Estimated taxes are typically paid quarterly, with deadlines generally falling on April 15th, June 15th, September 15th, and January 15th of the following year [3]. However, these dates can be adjusted if they fall on a weekend or holiday. For example, in 2025, the June 15th deadline shifts to June 16th because the 15th falls on a Sunday [3].

How Do You Pay Estimated Taxes?

You can pay your estimated taxes in several ways:

• By mail: You can mail a check or money order along with Form 1040-ES, Estimated Tax for Individuals [5].
• Online: You can pay online through the IRS website or through various tax preparation software [5].
• By phone: The IRS offers a payment service by phone [5].
• IRS2Go mobile app: You can also make payments through the IRS2Go mobile app [5].

What Happens If You Don't Pay Estimated Taxes?

If you don't pay enough estimated tax, or if you don't pay on time, you may be charged penalties [5]. These penalties can vary depending on how much you owe and how late your payment is. It's important to calculate your estimated taxes accurately and pay them on time to avoid potential penalties.

Key Takeaways for Christians

As Christians, we are called to be good stewards of our resources, and that includes managing our finances responsibly. Paying taxes is a civic duty and a way to contribute to the common good. By understanding and fulfilling our tax obligations, including estimated taxes, we demonstrate integrity and obedience to the law.

Works cited

1. Estimated taxes | Internal Revenue Service, accessed January 20, 2025, https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes
2. Estimated tax payments and Form 1040-ES - H&R Block, accessed January 20, 2025, https://www.hrblock.com/tax-center/irs/forms/estimated-tax-1040es/