WASHINGTON — The Internal Revenue Service today encouraged taxpayers who paid too little tax in 2024 to make a fourth quarter estimated tax payment on or before Jan. 15, 2025.
Income taxes are pay-as-you-go, meaning taxpayers must pay most of their tax throughout the year in which their income is earned or received. Usually this is done by withholding tax from paychecks or by making quarterly estimated tax payments to the IRS (or by a combination of both).
However, taxpayers who pay quarterly sometimes overlook this step, and missing a quarterly payment can result in unexpected penalties and fees when they file their returns in 2025.
Who needs to make a payment?
Taxpayers who earn or receive income that is not subject to tax withholding, such as self-employed people or independent contractors, should pay their taxes quarterly to the IRS.
Taxpayers who owed on their most recent return may find they owe again when they file the following year and should consider making an estimated quarterly payment to avoid a potential tax bill or penalty.
Taxpayers in this situation normally include:
- Those who itemized in the past but are now taking the standard deduction.
- Two wage-earner households.
- Employees with non-wage sources of income such as dividends.
- Those with complex tax situations.
- Those who failed to increase their tax withholding.
What gets taxed?
The IRS reminds people that most income is taxable. This includes unemployment income, refund interest and income from the gig economy and digital assets, such as cryptocurrency and non-fungible tokens (NFTs.) When estimating quarterly tax payments, taxpayers should include all forms of earned income, including from part-time work, side jobs or the sale of goods.
Also, various financial transactions, especially late in the year, can have an unexpected tax impact. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds, and stocks, bonds, virtual currency, real estate or other property sold at a profit.
How to make an estimated tax payment
The best way to make a payment is through IRS Online Account. There taxpayers can see their payment history, any pending payments and other useful tax information. Taxpayers can make an estimated tax payment by using IRS Direct Pay, debit or credit card or digital wallet, or the Treasury Department's Electronic Federal Tax Payment System (EFTPS).
For information on other payment options, visit Make a payment on IRS.gov. If paying by check, taxpayers should be sure to make the check payable to the "United States Treasury."
Act now to avoid a penalty
Either payment method – withholding or estimated tax payments – or a combination of the two, can help avoid a surprise tax bill at tax time and the underpayment of estimated tax by individuals penalty that often applies.
If a taxpayer fails to make required quarterly estimated tax payments earlier in the year, making a payment soon to cover these missed payments will usually lessen and may even eliminate any possible penalty.
Use the IRS’ Tax Withholding Estimator tool
The Tax Withholding Estimator, available on IRS.gov, can help people determine if they need to make an estimated tax payment. It also helps taxpayers calculate the correct amount of tax to withhold throughout the year based on their complete set of tax facts and circumstances.
Alternatively, taxpayers can use the worksheet included with estimated tax form 1040-ES, or review Publication 505, Tax Withholding and Estimated Tax PDF, to figure estimated taxes.
Planning ahead
It’s never too early to get ready for the tax-filing season. For more tips and resources, check out Get ready and Publication 505, Tax Withholding and Estimated Tax pages on IRS.gov.
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