Estimated Taxes for Individuals

What are Estimated Taxes?

Taxes need to be paid as we earn or receive income throughout the year. In general, they are already retained as soon as this income is generated. However, if they are not sufficiently retained at their origins, or not at all, it is necessary to estimate these taxes due and make the corresponding payment. It is important to pay attention to income, dividends, pensions, capital gains and prizes that may not have withheld taxes.

These are the so-called Estimated Taxes that not only occur for income, but must also be paid in relation to the Self-Employment Tax (for example, freelancers, people who own their own business or work under independent contracts) and the Alternative Minimum Tax (which applies to individuals who have a high economic income).

Who must or must not pay?

Who must pay:

  • Taxpayers who expect an amount of taxes due equal to or greater than USD 1,000.00 at the end of the year.
  • Individuals who had taxes due in the previous year may need to pay Estimated Taxes for the current year.

Who must not pay:

  • If you receive salaries and/or wages, you can avoid paying Estimated Taxes by asking your employer to withhold more taxes. (To do this, submit a new Form W-4 with your employer readjusting the amount withheld). On the website below you can estimate the correct amount that should be withheld from your paycheck: https://apps.irs.gov/app/tax-withholding-estimator
  • If you cumulatively comply with the following three criteria:
    • There were no tax obligations in the previous year.
    • You were an American citizen or tax citizen.
    • Your previous tax year lasted a period of 12 months.

* Not having a tax obligation in the previous tax year means that you did not have taxes due or did not need to file a statement.

When must they be paid? (Pay as you go, so you won’t owe)

In order to meet tax needs, the year is divided into four different periods and each of them has a specific payment date. Payment dates are predetermined in the year prior to the current tax period.
For a better understanding, 2023 is an example of a current tax year in which four payment dates are stipulated. The first payment was set for April 18th, the second for June 15th, 2022, the third for September 15th of the same year and the last for January 16th, 2024. Remembering that these dates may vary each year.
It is important to note that if payment is sent using the United States Postal Service, the date of payment of Estimated Taxes will be considered to be the date of mailing of the package. Additionally, if the date falls on a Saturday, Sunday or legal holiday, payment will still be on time if made exactly on the next business day.

How to pay?

1) Post Office:
Sent a check or cash order through the United States Postal Service using Form 1040-ES, which applies to US citizens and tax residents, (https://www.irs.gov/pub/irs-pdf/f1040es.pdf) or Form 1040-ES(NR), which applies to non-tax residents (https://www.irs.gov/pub/irs-pdf/f1040esn.pdf).
With this payment method, it is important to be aware of the shipping details as specified by the Internal Revenue Service – IRS (https://www.irs.gov/payments/pay-by-check-or-money-order).

2) Registration on the IRS website:
Online through an account registered on the IRS website (https://www.irs.gov/payments/your-online-account). The website may also be accessed by cell phone or using an application available for IOS and Android systems (https://www.irs.gov/newsroom/irs2goapp).

3) Bank Account:
Online through a direct payment into your checking or savings account, at no additional cost and without registration required (https://www.irs.gov/payments/direct-pay).

4) Digital Card or Wallet:
Online using a debit or credit card, or using a digital wallet, such as PayPal. This payment will have additional costs that may vary depending on the payment method chosen. Fees are specified on the website (https://www.irs.gov/payments/pay-your-taxes-by-debit-or-credit-card).

5) Electronic Federal Tax Payment System – EFTPS:
Online through the Electronic Federal Tax Payment System – EFTPS, a system developed by the U.S. Department of Treasury itself in which, after having your credentials released, you can make any necessary payments relating to federal taxes (https://www.eftps.gov/eftps/).

6) Eletronic Funds Withdrawal – e-fillling:
Through an integrated system that will electronically withdraw funds from a bank account appointed on your Tax Return. This option is only available when the tax is prepared and sent using software or when done by a tax professional (https://www.irs.gov/payments/pay-taxes-by-electronic-funds-withdrawal).

7) Same-Day Wire:
It is possible to make a scheduled transfer at your financial institution by contacting them to check availability, costs and limits (https://www.irs.gov/payments/same-day-wire-federal-tax-payments).

8) Cash:
If, for some reason, it is necessary to pay in cash, you must remember that it should never be sent by the post office. Therefore, IRS provides some officially listed partners and assistance centers that are qualified to receive this type of payment (https://www.irs.gov/payments/pay-your-taxes-with-cash).

Are there penalties for those who do not pay?

A fine may be applied if payments during the year were not sufficient, either because the required amount of taxes was not withheld or Estimated Taxes were not paid.

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