The IRS provides Form 1040-ES for you to calculate and pay estimated taxes for the current year. You use Form 1040-ES to pay income tax, self-employment tax and any other tax you may be liable for.
Who pays estimated tax?
Not all income is set up so that taxes are deducted at the source. Independent contractors and freelancers, for example, do not have tax deducted from their pay. Earnings from interest, dividends and rent, taxable unemployment compensation, retirement benefits and the taxable part of your Social Security benefits are other examples of income that is not taxed at the source. If you have any such income coming in, then you should pay the estimated tax. Additionally, if your employer was not withholding enough (you might need to adjust your withholding form W-4), you would also need to pay in estimated tax if you did not want to owe when you actually file your taxes.
Paying estimated taxes
It is possible to underestimate, resulting in an underpayment and penalty. To avoid this penalty, use your previous year’s taxes as a guide. As long as you pay 100 percent of the previous year's tax, you won’t be subject to the penalty. If you end up overpaying, you can receive a tax refund at the end of the year.
You should pay the quarterly tax in a timely fashion, or you may find yourself subject to a penalty for a particular quarter because the tax was received late, even if you overpaid the total tax due for the year and are eligible for a refund.
When to file 1040-ES
Estimated tax payments are due four times in a tax year. For calendar year taxpayers (which is most individuals), the due dates are April 15, June 15, September 15 of the current year and January 15 of the following year.
How to Pay Your Estimated Taxes
Send in your payment (check or money order) with the corresponding payment voucher from Form 1040-ES. Pay electronically using the Electronic Federal Tax Payment System (EFTPS). You need to enroll for this service in order to use it, and you can set up one-time or recurring payments up to a year in advance. Enroll online at www.eftps.gov. You also can modify or cancel payments as late as two days before they are paid. Pay by credit or debit card using a pay-by-phone system or the internet through one of only three IRS-authorized card processors. You will be charged a processing few, the amount of which will be provided to you at the time of payment.
Check out the other personal finance article from Be Secure Financially about paying taxes with a credit card to earn points: