The U.S. federal tax system is a pay-as-you-go arrangement. Taxpayers are supposed to pay the Internal Revenue Service (IRS) relatively soon after they receive any income.
Ideally, you pay toward your tax obligation throughout the year by one means or another. This is usually done by making estimated quarterly payments or having taxes withheld from your paychecks.
But this can be challenging, especially for the self-employed. If you were unemployed or had irregular income over the last year, it may be even harder.
Worried about how to pay your taxes when it’s time to file your return? Perhaps the bumpy last couple of years caused you to forget to make an estimated payment. Maybe you were living from one unemployment check to the next. Whatever the case, you have options. Here's what you can do next.
Adjust Your Withholding
Taxpayers who worked as employees throughout the last year might fare better than others who didn't when it comes time to file their tax return by the April deadline.
If you were an employee, you've already paid taxes as you earned income because taxes have been withheld from each of your paychecks. This was done based on the information you provided on your W-4 form.
Based on this form, your employer has been forwarding that money to the IRS on your behalf throughout the year.
Your withholding should come pretty close to covering what you owe if you completed Form W-4 correctly and didn’t have any additional sources of income that you haven’t accounted for.
Form W-4 can be changed as needed. The IRS recommends reviewing and updating it from time to time to ensure that the information you initially provided to your employer is still correct. This includes:
- Your filing status
- The number of your dependents
- Tax credits you’re likely to claim
- Tax credits you won’t be able to claim again this year
Did you pick up a side gig to make extra cash during a difficult year? You can request that more taxes be withheld from your paycheck to help cover this income. There’s a special line on Form W-4 for this purpose.
You should also update your withholding if you had a big life change in the last year. This could be the case if you:
- Had a child
- Had a child “age out” of dependent status during the tax year
The IRS provides a handy tax withholding estimator on its website to help you get your withholding just right.
Make Estimated Quarterly Payments
Are you self-employed, or do you prefer to leave your employer out of the process rather than request extra withholding? You can make estimated quarterly income tax payments. These payments should be based on what you will probably owe on all taxable income at year’s end.
If you're a sole proprietor or independent contractor, you must make estimated payments. Your clients and customers don’t typically withhold taxes from their payments to you.
The IRS charges penalties if you don’t do so and come up short at filing time. But other taxpayers are free to pay in this way as well.
To avoid an estimated tax penalty, pay at least 90% of your total tax bill by year’s end if you suspect that you’ll owe $1,000 or more in income tax for the year.
The “quarterly” part of this option derives from the fact that estimated payments are due to the IRS four times a year. Jan. 15, April 15, June 15, and Sept. 15 are the dates that quarterly payments are due every tax year.
“If you know your tax bracket, you can send a quarterly payment on Sept. 15 for the third quarter, and Jan. 15 for the fourth quarter,” Michael Merlino, president and CEO of Atlantic Accounting Services in Northfield, New Jersey, told The Balance.
You can use tax Form 1040-ES to determine and pay your estimated tax payment.
Did You Collect Unemployment?
Although taxpayers received a break on unemployment income that was earned in 2020, there is no such tax break for unemployment income earned in tax year 2021 (at least not as of Nov. 30, 2021).
Unemployment checks are considered to be taxable income and you'll need to pay federal and potentially state (depending on where you live) income tax on it when you file your return in 2022.
You should receive a Form 1099-G in January detailing how much you received in unemployment benefits. It should also show how much you had withheld for taxes if you arranged for withholding.
If you didn't have tax withheld from your unemployment checks, you can also make estimated quarterly payments, too, to help cover the tax you owe on that income.
The IRS offers an interactive tool on its website to help you determine whether your unemployment benefits are taxable.
Did You Get a Stimulus Check?
The federal government provided stimulus checks to help many Americans during the 2020 coronavirus economic crisis. That money was not taxable income.
Officially called “Economic Impact Payments” (EIPs), you might even have received a third stimulus check at the end of 2020 or the very beginning of 2021. That EIP is also not to be included in your gross taxable income.
If you received that third EIP in 2021, you may need to include that information when you file your 2021 tax return in 2022 to determine if you're eligible for the 2021 Recovery Rebate Credit. You likely received a notice in the mail from the IRS. Keep this handy for when you're ready to file.
The Bottom Line
The amount of your income and how you earned that money can change from year to year. It’s important to know how taxes work with that income—whether you have money withheld from paychecks or pay quarterly estimated payments. Whatever you do, take the time to understand your income and how you can plan ahead for tax season so that you're not surprised with an unexpected tax bill.
Frequently Asked Questions (FAQs)
What are estimated tax payments?
Estimated tax payments are quarterly payments individuals can make to the IRS to help pay their taxes throughout the year. You can elect to pay estimated tax payments if you earn money that is not taxed, such as from a side gig or as a sole proprietor. You may also make estimated tax payments if you collect unemployment income and did elect to have taxes withheld. Estimated tax payments may help prevent a surprise tax bill during tax season.
When are tax payments due?
Your main tax bill is due April 15 (or the business day that follows if April 15 falls on a weekend). April 15 is also when quarterly estimated tax payments are due. The other due dates for quarterly estimated tax payments are June 15, Sept. 15, and Jan. 15.
Where do you mail estimated tax payments?
You can mail your estimated tax payments by first completing a voucher and then mailing a check or money order to one of three addresses, depending on where you live.
If you live in Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Texas, mail them to Internal Revenue Service P.O. Box 1300 Charlotte, NC 28201-1300.
If you live in Arkansas, Connecticut, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Jersey, New York, Oklahoma, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia, Wisconsin, mail them to Internal Revenue Service P.O. Box 931100 Louisville, KY 40293-1100.
If you live in Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Michigan, Montana, Nebraska, Nevada, New Mexico, Ohio, Oregon, North Dakota, South Dakota, Utah, Washington, Wyoming, mail them to Internal Revenue Service P.O. Box 802502 Cincinnati, OH 45280-2502.