When is the first quarterly tax payment due for 2022

Published Mon, Apr 11 2022 11:50 AM EDTUpdated Mon, Apr 11 2022 2:09 PM EDT

• First-quarter estimated tax payments are due April 18 for income from self-employment, small businesses, gig economy work, investments and more.
• You may avoid penalties by covering 90% of 2022 taxes or 100% of 2021 levies if your adjusted gross income is $150,000 or less.

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With one week left to file your federal taxes, it's easy to overlook another sneaky deadline: the due date for first-quarter estimated tax payments.

If you have income from self-employment, a small business, gig economy work, investments and more, you must make a payment by April 18.

You need to pay if you expect to owe $1,000 or more in taxes for 2022, according to the IRS. But estimated payments may reduce or eliminate penalties.

"Everyone needs to pay taxes," said certified financial planner Bryan Hasling, partner at Lodestar Private Asset Management in Alamo, California. "And the IRS strongly prefers that you pay them steadily across the year as opposed to waiting until the last minute."

The fastest way to make a quarterly estimated tax payment is through IRS DirectPay or sending money through your IRS online account. However, there are other available options listed at the IRS online payments webpage.

The late payment penalty is 0.5% of your balance due, for each month after the due date, up to 25%.

If your employer withholds money from each paycheck, you can skip estimated tax payments. But you can use the withholding estimator tool to make sure your employer is taking enough.

You can avoid penalties by covering 90% of your 2022 taxes or paying 100% of your 2021 bill if your adjusted gross income is $150,000 or less. (You'll need 110% of your 2021 bill if you earn more than $150,000.)

If you expect to make a similar income to last year, you can check your 2021 return for last year's tax liability and divide that number into four quarterly payments.

Independent contractors often get paid at the end of large projects. And those timelines might not line up with quarterly schedules from the IRS.

Bryan Hasling

partner at Lodestar Private Asset Management

Other scenarios that may require estimated tax payments could be selling a property, cashing out investments — including cryptocurrency — or taking money from inherited retirement accounts, said Olga Espiritu, a CFP and president of Tree Of Life Wealth Advisory Group in Cooper City, Florida. 

"Those are things that people don't usually deal with every year, and they might come as a surprise," she said. 

However, there may be some scenarios where filers purposely skip estimated payments, despite the late fee, because they don't have the cash or prefer not to drain their savings, Hasling from Lodestar Private Asset Management said. 

"Independent contractors often get paid at the end of large projects," he said. "And those timelines might not line up with quarterly schedules from the IRS."

Whether to make estimated tax payments may be less about the penalty and more about their cash flow, Hasling said.

People who work for companies have estimated taxes withheld from their paychecks, but the self-employed, business owners, and those who live on investment income are required to proactively pay estimated taxes on a quarterly basis.

In the United States, income taxes are pay-as-you-go. If you don't keep up with payments, you could potentially end up with a large tax bill, in addition to penalties for late payment, when it comes time to file your return.

• Business owners and self-employed people are required to proactively pay estimated income taxes on a quarterly basis.
• In general, anyone who expects to owe $1,000 or more is required to pay quarterly estimates (unless their taxes are automatically deducted by an employer).
• Estimated tax payment deadlines are usually April 15, June 15, Sept. 15, and Jan. 15 of the following year, with occasional adjustments to the next business day for holidays.
  

Estimated tax payments are typically made incrementally, on quarterly tax dates: April 15, June 15, September 15, and January 15 of the following year, unless a due date falls on a weekend or legal holiday.Here are the dates for 2022:

While the first quarter is the first three calendar months of the year, the second "quarter" is only two months long (April 1 to May 31). The third quarter is the next three months (June 1 to Aug. 31), and the fourth quarter covers the final four months of the year.

If a due date falls on a weekend or legal holiday, then payments are due on the next business day. In 2022, for example, the deadline to pay first quarter estimated taxes is Monday, April 18 due to the Emancipation Day holiday in Washington, D.C., which falls on Friday, April 15. (By law, Washington, D.C., holidays affect federal tax deadlines.)

Residents and business owners in Louisiana and parts of Mississippi, New York, and New Jersey were granted extensions on their deadlines for filings and payments to the IRS due to Hurricane Ida. Due to the tornadoes in December 2021, taxpayers in parts of Kentucky were also granted extensions. So were residents impacted by the Colorado wildfires that same month. You can consult IRS disaster relief announcements to determine your eligibility.

Anyone who projects their tax bill to be under $1,000, after taking into account any withholding and refundable tax credits such as earned income credits and premium tax credits, doesn't need to bother with estimated taxes. Self-employed people, small business owners, and anyone else who receives income that has not had taxes withheld from it needs to pay estimated taxes to avoid or minimize penalties for late payment.

If you receive pension or annuity income you can ease the burden of estimated taxes by filing Form W-4P with the plan administrators or other parties who pay out the benefits to have tax withheld. You can also opt for voluntary withholding on payments such as Social Security benefits and unemployment benefits by filing Form W-4V.

If you have income from an employer and independent contractor income or investment income, then you can increase the amount of your withholding from your paycheck by filing a new Form W-4 with your employer in lieu of paying estimated quarterly taxes.

If you intend to use 2021’s tax bill to project 2022’s liability, take the following adjustments into account:

As part of the third coronavirus stimulus package, the American Rescue Plan Act that was signed into law on March 11, 2021, the 2021 tax year saw key changes. Some of these changes remain in place for 2022, while others have not been renewed for the 2022 tax year.

• The American Rescue Plan increased the maximum annual Child Tax Credit from $2,000 a child to $3,000 per child ages 6 to 17, and $3,600 for each child under the age of six. The increase lasted through 2021. Legislation to extend the increased credit for 2022 was not passed. For tax year 2022, the credit will revert back to $2,000 and be partially refundable.
• The investment income limit for 2021 was raised from $3,650 to $10,000. This $10,000 figure will be pegged to inflation and adjusted accordingly every year going forward. For example, in 2022, the amount rises to $10,300. This is a permanent change as part of the American Rescue Plan Act.
  

Dozens of tax breaks are adjusted annually for inflation, such as the IRS standard mileage rates. These may result in less tax liability, even if your income remains consistent from 2021 to 2022.

Life events can affect your taxes in different ways. Will a marriage or divorce change your filing status and the associated tax rates? Are you expecting a child who will result in a child tax credit? Will a new home purchase entitle you to more deductions for mortgage interest and real estate taxes?

If you don’t work for an employer who withholds taxes from each paycheck and you expect your tax bill to be more than $1,000, you are required to pay estimated taxes. Self-employed people and small business owners are among those who pay quarterly estimated taxes.

Fill out Form 1040-ES and mail it, along with a check, to the IRS. Or you can make estimated payments online via IRS Direct Pay .

If you don’t pay estimated taxes throughout the year, you will end up with a large tax bill when you file your tax return. You will also be subject to penalties for late payment on the taxes, which are owed quarterly.

While estimating taxes isn’t an exact science, coming close to the correct amount will help you avoid penalties if you’re mindful of the quarterly deadlines. It can be a good idea to consult a tax professional when questions arise about complex tax issues.