Estimated Taxes Due Today

Third quarter estimated taxes, covering June 1 to August 31, are due today.  To learn more about estimated taxes, including due dates, penalties, and different methods for calculating it, see our post for the previous quarter.  But for today, here are the main things you need to know:

  • There is a penalty for underpaying estimated taxes. In 2008, the fine was a 5-6% annual interest rate compounded daily.
  • Generally, you must pay estimated taxes if (1) you expect to owe at least $1000 in taxes after withholdings and credits AND (2) you expect your withholding and credits to be less than (a) 90% of your 2009 taxes or (b) 100% of your 2008 taxes covering 12 months.
  • You still have time to file your estimated taxes today.  If you paid estimated taxes last quarter and did not use the annualized income method to calculate how much you owed, just pay the same as you did last quarter.  If you are not using the annualized income method, to avoid penalties, you only have to pay in estimated taxes the lowest of (1) 100% of your 2008 taxes and (2) 90% of the taxes you expect to owe in 2009.  Divide that amount by 4 and that is your quarterly estimated taxes payment.

If you paid last quarter’s estimated taxes using the annualized income method, however, you must do it the same way this quarter.  Use publication 505 to guide you and, if possible, find your calculations from the previous quarter to help you fill in the blanks.

  • Paying is easy. Estimated taxes have the same payment methods as regular taxes, but you do not even have to send in the forms you used to calculate them.  Rather, if you are paying by check or money order, you only need to enclose the Payment Voucher 3 from the form 1040-ES with it.

You may also want to check whether your state requires estimated tax payments as well.  As with the regular income tax, completing state estimated taxes may be easier once you have already calculated your federal one.  And penalties may actually be higher if you don’t file.