Tax Extension alert: The April 15 deadline is approaching—and it covers more than just your annual tax filing. It’s also the deadline for making the first-quarter estimated tax payment for 2025. If you’re self-employed, receiving rental income, working in the gig economy, or earning interest and dividends, you may be required to make these payments.
Who Needs to Pay Estimated Taxes?
Generally, if you expect to owe at least $1,000 in taxes for the year, you’ll need to pay quarterly estimated taxes. This applies to many who have self-employment earnings, gig economy work, rental income, and other sources of income that don’t have taxes withheld automatically. Even retirees and investors may need to make these payments, according to the IRS.
The Risks of Missing the Deadline
If you miss the April 15 deadline for the first-quarter estimated tax payment, you could face penalties. The IRS calculates these penalties based on interest, which compounds daily at the current interest rate.
However, you can avoid penalties if you follow the safe harbor guidelines. To qualify for safe harbor, you must pay 90% of your current-year taxes or 100% of your taxes from 2024, whichever is smaller. If your adjusted gross income in 2024 was over $150,000, the safe harbor amount increases to 110%.
How to Pay Estimated Taxes
The IRS offers several methods for making estimated tax payments:
- Online via IRS Direct Pay or the Electronic Federal Tax Payment System (EFTPS)
- By Mail with a check or money order
- Using a Debit Card, Credit Card, or Digital Wallet
It’s important to keep track of your payments, so consider using the IRS online account to manage your payments and monitor transactions. If you mail your payment, experts recommend using certified mail with a return receipt for proof of submission.
What If You Need More Time?
If you’re not ready to make your first-quarter payment by April 15, you can always file a tax extension. This grants you extra time to submit your taxes, but it doesn’t extend the time to pay. You’ll still need to pay at least 90% of your estimated taxes to avoid penalties.
Source: CNBC
