TAX SEASON 2024
Quarterly tax payments: what are they and who has to pay them?
By understanding quarterly taxes and their purpose, you can take control of your tax burden and ensure smoother tax payments throughout the year.
While tax season often conjures images of a frantic April rush, some individuals navigate their tax burden throughout the year with quarterly tax payments. But what exactly are they, and who needs to worry about them in 2024?
Understanding quarterly taxes
Quarterly taxes are estimated payments made throughout the year on income that isn’t subject to regular withholding. Withholding refers to the portion of your income your employer automatically deducts and sends to the IRS to cover income taxes. However, some forms of income, such as freelance earnings, investment income (interest, dividends), and rental income, aren’t subject to withholding. This is where quarterly taxes come in.
By making estimated tax payments throughout the year, you aim to pay in four installments what you expect to owe in income taxes by the end of the year. This helps avoid a large tax bill come tax season and potential penalties for underpayment.
Who needs to pay quarterly taxes in 2024?
Not everyone needs to be concerned about quarterly taxes. Here’s a breakdown for 2024:
- Self-employed individuals and freelancers: If your net earnings from self-employment are $400 or more after business expenses, you’ll need to pay quarterly taxes.
- Investors: Interest income, dividends, capital gains – if these sources of income aren’t subject to withholding, you will need to make quarterly payments.
- Individuals with multiple income sources: If your income from various sources, including a part-time job or side hustle, pushes you above the withholding threshold, quarterly taxes will be necessary.
Calculating your payment amount
There are a few ways to estimate your quarterly tax payments for 2024:
- Prior Year Tax Return: Use your 2023 tax return as a guide, assuming your income remains similar.
- Form 1040-ES: The IRS provides this estimated tax worksheet to help calculate your payments.
- Tax Software: Many tax software programmes offer estimated tax payment calculators.
There are several ways to make your quarterly tax payments for 2024, though the IRS recommends filing electronically.