If you haven’t been sending part of your income to the IRS in recent months, this week is the last chance to avoid a tax penalty.
The deadline for third-quarter estimated taxes is Sept. 15, applying to income from self-employment, small businesses, investments, gig economy work and more, according to the agency.
“It’s a pay-as-you-go system,” said certified financial planner John Loyd, owner at The Wealth Planner in Fort Worth, Texas. “A lot of folks don’t find out until they file their tax return and they get a very nasty surprise.”
While many workers withhold taxes from each paycheck, others must make payments four times per year. The late-payment penalty is 0.5% of your balance due, for each month after the deadline, up to 25%.
You can make quarterly estimated tax payments through IRS Direct Pay, send money through your IRS online account or another option listed on the IRS payments website. But experts urge taxpayers to pay online.
“I would much rather pay electronically and have a record of it,” said JoAnn May, a CFP and CPA who founded Forest Asset Management in Berwyn, Illinois. She noted some filers may also have state-level estimated tax payments due.
Other scenarios requiring estimated tax payments may be selling investments, earning a bonus or making retirement account withdrawals without withholdings, Loyd said.