The federal tax system is a pay-as-you go system which means that as you earn income you must make estimated tax payments. For most people who work as employees, the money is automatically withheld from their paychecks. However, if you are self-employed or do not have enough income withheld from your paycheck, you must make quarterly installment payments to the IRS.
Step 1
Look up the amount of tax you paid the previous year on your prior year's tax return.
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Step 2
Estimate the amount of tax you expect to owe at the end of the current year. If you are uncertain about this amount because of unemployment, being paid on a commission, or some other reason, skip this step.
Step 3
Calculate the minimum amount of withholding payments you will be required to make over the course of the year based on the prior year's payments. If your adjusted gross income is more than $75,000, you can pay 110 percent of the prior year's tax. If your adjusted gross income is below $75,000, you can pay 100 percent of your prior year's total. For example, if last year you earned $50,000 and paid $5,000 in taxes, you must have paid at least $5,000 over the course of the year.
Step 4
Calculate the minimum amount of withholding payments you will be required to make over the course of the year based on the income you expect to earn this year. If you choose this method, you must have paid at least 90 percent of your tax bill over the course of the year. For example, if you expect to owe $5,000 in taxes, you must have paid at least $4,500 over the course of the year.
Step 5
Determine which method you are going to use based on the amounts in steps three and four. Most people choose the method in step three because that amount will not change. If you use the method in step four and your income--and tax bill--unexpectedly increases, you may have to pay additional interest and penalties to the IRS.
Step 6
Divide the amount you expect to have to pay over the course of the year by four to determine how much you have to pay in each of the installment payments over the year. The installment payments are due April 15, June 15, September 15 and January 15.
Step 7
Make your payment to the IRS either through the mail or online (see resource 1). If you are paying by mail, cut off the voucher at the end of the Form 1040 ES (see resource 2) and make your check payable to the "United States Treasury." Fill out the voucher correctly with your name, address, social security number and the amount that you are paying. The address that you mail your check and voucher to depends on where you live and is listed toward the end of Form 1040 ES. To pay online, you must first register and receive your PIN in the mail, which can take up to 15 days. However, if you pay online, you have the option to use a credit card. There is an additional fee. An advantage of paying online is that there is no check or voucher to write because it will be an electronic transfer.
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