The IRS is reminding taxpayers that the fourth quarter 2023 estimated tax payment is due on January 16, 2024. Taxpayers who will owe taxes for 2023 should make a payment to avoid a penalty or tax bill when filing their 2023 tax returns in April.

Who needs to make an estimated payment?

Taxpayers who earn income not subject to tax withholding such as self-employed individuals or independent contractors should pay their taxes quarterly to the IRS.

In addition, individuals who expect to owe tax on their 2023 return because they didn’t have enough tax taken out of their retirement income or wages or who owed tax on their 2022 return should make an estimated tax payment. This includes taxpayers who:

• Itemized in 2022 but will take the standard deduction in 2023,
• Two wage-earner households, who may be in a higher tax bracket in 2023,
• Employees with non-wage sources of income such as dividends and interest, and

What is taxable income?

Most income is taxable, including unemployment income, refund interest, income from part-time jobs, side jobs, sale of goods, the gig economy, and from digital assets. Taxable income also includes lottery winnings, stock dividends and capital gains from mutual fund distributions, and the sale of stocks and/or bonds.

Note. When estimating quarterly tax payments, taxpayers should include all forms of income.

How to calculate estimated payments.

The IRS’ Tax Withholding Estimator, may be able to help taxpayers calculate their estimated tax payment in addition to their correct wage withholding.

Alternatively, taxpayers can use the worksheet included with Form 1040-ES, Estimated Tax for Individuals.

Note. To calculate their withholding, individuals with pension income should use Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments, nonresident aliens should use Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens. Individuals with complex tax situations should see IRS Publication 505, Tax Withholding and Estimated Tax.

How to make an estimated tax payment.

The IRS recommends making estimated tax payments electronically and provides several options, including:

• IRS Direct Pay. This option allows taxpayers to schedule a payment in advance of the Jan. 16 deadline.
• IRS Online Account. This option allows taxpayers to view their payment history, pending or recent payments, and other tax information.
• Electronic Filing Tax Payment System (EFTPS). EFTPS is a free system that not only offers a payment solution but also allows taxpayers to schedule payments up to a year in advance, and track and change scheduled payments.

Note. EFTPS has a registration requirement that may take up to two weeks to complete. Taxpayers on a tight timeline should register to use EFTPS now or use one of the other payment options.

For most payment options, taxpayers can pay directly from their bank account or with a debit or credit card. Payments with a debit or credit card will incur a fee that is charged by the payment processor.

Questions?

Please reach out to us if you have questions about estimated tax payments.