The Importance of Estimated Tax Payments
As a tax attorney, when I have a client who has a balance due to the IRS, it is important to advise them on how to not add a new tax balance in the current year or an upcoming year. While the IRS views each tax year separately for the purpose of determining the amount of tax due for that year, an installment agreement with the IRS must cover all tax years that have a balance due. For example, if a client has an installment agreement for 2023, but now owed taxes for 2024, the client must revise their installment agreement to include both years. The client cannot have two installment agreements, one for 2023 and one for 2024, for Form 1040 taxes.
In addition, if the client is already in an installment agreement with the IRS for 2023, their failure to pay their 2024 tax due by the April 15, 2025, deadline is considered a default of their installment agreement. If they do not contact the IRS to revise their installment agreement, the default will lead to the termination of the installment agreement, additional penalties, and renewed collection action.
The next question is, “how do I make sure that I do not have a balance due to the IRS for the current or upcoming tax year?” One option is to increase the amount of tax that is withheld from your paycheck, if you have a job that provides you with a Form W-2. Another option for people who receive a W-2 or for people who have non-W-2 income, is to make estimated tax payments. For specific advice about how much you should pay in estimated taxes, please consult your tax preparer.
Although the IRS applies estimated tax payments to specific periods of the year, you can make as many estimated tax payments during the year as you need to in order budget for the amount that you need to pay. The IRS has made it very easy for taxpayers to make estimated tax payments using the Direct Pay option on irs.gov/payments.
· Click “Direct Pay with bank account”
· Click “Pay individual Tax” under “Personal tax payments”
· Click “Make a payment”
· Select as the Reason for Payment – “Estimated Tax”
· Apply Payment to “Income Tax - Form 1040ES”
· The Tax Period will automatically fill in the current year.
In the alternative, taxpayers can use a debit card, credit card, or digital wallet, to make the tax payment through a third-party processor, using the same link on irs.gov/payments but choosing the option for “Pay by card or digital wallet.”
By making the estimated tax payments on a monthly or quarterly basis, taxpayers are able to budget their tax payments and spread them out during the current year. As the end of the year approaches, it is a good time to review how much you have already paid in for the year, through Form W-2 withholding and estimated tax, and to consult with your tax preparer regarding your projected tax for the year so that you can make additional tax payments before the January 15, 2026, estimated tax deadline and the April 15, 2026, tax payment deadline.
If you’re unsure how to proceed or need help managing your IRS payments, contact our firm for a consultation. We can guide you through the process and help you return to being in compliance with your tax obligations.