What are estimated tax payments?
Estimated tax payments are periodic payments businesses and self-employed individuals make to cover their tax obligations throughout the year. Instead of waiting until tax season, these payments help ensure that the IRS gets its share on time, avoiding penalties and large tax bills all at once.
As an employer, estimated tax payments may apply to you if you’re a sole proprietor, partner, or corporation that expects to owe at least $1,000 in taxes after accounting for withholdings and credits. This is a crucial part of tax planning for many small business owners. Homebase payroll helps you calculate and make accurate estimated tax payments.
Why do employers need to make estimated tax payments?
Unlike traditional employees who have taxes automatically withheld from their paychecks, business owners and self-employed individuals must pay their taxes directly to the IRS. If you fall into this category, here’s why estimated tax payments matter:
- Avoid penalties – The IRS imposes fines for underpayment if you don’t pay enough throughout the year.
- Better cash flow management – Making smaller payments over time prevents a large tax bill in April.
- Stay compliant – Timely payments keep your business in good standing with the IRS.
- Plan for taxes proactively – Spreading out tax payments prevents financial surprises at year-end.
How to calculate estimated tax payments
Figuring out how much to pay can feel tricky, but it’s easier when broken down into steps:
- Estimate your taxable income – Consider your expected profits after business expenses.
- Determine your tax liability – Use the IRS tax brackets and self-employment tax rates.
- Account for deductions and credits – Factor in business expenses, tax credits, and other deductions.
- Divide the total by four – Since estimated taxes are paid quarterly, split your annual amount into four equal payments.
If your income fluctuates throughout the year, you may need to adjust payments to avoid overpaying or underpaying. Alternatively, you can sign up for Homebase and let us handle taxes.
When are estimated tax payments due?
The IRS has four quarterly due dates for estimated tax payments:
- April 15 – Covers income earned from January through March.
- June 15 – Covers income earned from April through May.
- September 15 – Covers income earned from June through August.
- January 15 (of the following year) – Covers income earned from September through December.
The deadline shifts to the next business day if the due date falls on a weekend or holiday.
How to pay estimated taxes
Making estimated tax payments is straightforward. Employers and business owners can pay using these methods:
- Online through the IRS – The IRS’s Electronic Federal Tax Payment System (EFTPS) is the most convenient payment method.
- Direct pay from a bank account – Use IRS Direct Pay to send payments securely.
- By check or money order – Mail payments using IRS Form 1040-ES.
- Through payroll deductions – Some business owners receiving W-2 wages may opt to increase withholdings to cover estimated tax obligations.
What happens if you don’t pay enough?
Failing to make estimated tax payments (or underpaying) can result in IRS penalties. The IRS may charge an underpayment penalty, depending on how much you owe and how late the payment is. To avoid penalties:
- Pay at least 90% of your current-year tax liability OR 100% of the previous year’s tax liability (110% for high earners).
- Mind the deadlines to prevent interest charges.
- Adjust payments if your business income changes.
Stay on top of payroll and taxes with Homebase
Managing estimated tax payments is just one piece of the puzzle—keeping up with payroll, tax filings, and compliance can be time-consuming. That’s where Homebase payroll comes in.
With Homebase, you can:
- Automate payroll tax calculations and withholdings.
- Ensure compliance with IRS regulations.
- Save time by handling payroll and estimated taxes all in one place.
- Get peace of mind knowing your business is tax-ready year-round.