Form 1040-ES: Estimated Tax for Individuals (2020)
What Form 1040-ES Is For
Form 1040-ES is the IRS form used to calculate and pay estimated taxes throughout the year on income that isn't subject to automatic tax withholding. When you work a traditional job, your employer withholds taxes from each paycheck and sends that money to the IRS on your behalf. But if you're self-employed, earn income from freelance work, receive rental income, investment dividends, interest, alimony, or other income without withholding, you're responsible for paying those taxes yourself as you earn the money throughout the year.
Think of estimated tax as a "pay-as-you-go" system. The IRS doesn't want to wait until April 15 of the following year to receive tax payments on income you earned months earlier. Form 1040-ES helps you estimate how much you'll owe for the year and breaks that amount into quarterly payments. The form includes worksheets to calculate your expected income, deductions, credits, and total tax liability, as well as payment vouchers you can mail with your checks if you choose to pay by mail.
This form covers not just regular income tax but also self-employment tax (the Social Security and Medicare taxes that self-employed individuals must pay) and any other taxes you might owe, such as the Additional Medicare Tax or Net Investment Income Tax. By making these quarterly payments, you avoid owing a large sum when you file your annual return and help prevent underpayment penalties.
When You’d Use Form 1040-ES (Late/Amended)
You must use Form 1040-ES if you expect to owe at least $1,000 in taxes for the year after subtracting any withholding and refundable credits, and your withholding and credits will be less than the smaller of either 90% of your current year's tax or 100% of last year's tax (110% if your prior year adjusted gross income exceeded $150,000, or $75,000 if married filing separately).
The form operates on a quarterly payment schedule with specific due dates: April 15, June 15, September 15, and January 15 of the following year. Notice that these quarters aren't evenly spaced—the first period covers three months, the second covers only two months, and the third covers three months again. If you miss a payment deadline or realize your income will be different than expected, you can amend your estimated tax calculations at any point.
To amend your estimated payments, simply recalculate your expected annual tax using a fresh worksheet and adjust your remaining quarterly payments accordingly. If you initially estimated too high and have already made payments, you can reduce future payments. If you estimated too low, increase the remaining payments to avoid penalties. There's no formal "amended Form 1040-ES" to file—you simply pay the corrected amounts going forward.
Special timing rules apply to certain groups. Farmers and fishermen who derive at least two-thirds of their income from farming or fishing can make just one payment by January 15 (or file their annual return by March 1 and pay the full amount then). If you start earning income subject to estimated tax after March 31, you may need to use the annualized income installment method to calculate payments, especially if your income arrives unevenly throughout the year.
You don't need to make the January 15 payment if you file your annual tax return by February 1 and pay your entire tax bill with that return. This exception acknowledges that filing your return early essentially accomplishes the same goal as making that final quarterly payment.
Key Rules or Details for 2020
The fundamental rule is that you must pay taxes as you earn income throughout the year. The IRS requires you to prepay at least 90% of your current year's tax liability or 100% of your prior year's tax (whichever is smaller) to avoid an underpayment penalty. For higher-income taxpayers—those with adjusted gross income above $150,000 ($75,000 if married filing separately)—that safe harbor increases to 110% of the prior year's tax.
There's an important exception: you had no tax liability for the prior full 12-month year. If your total tax was zero or you weren't required to file a return, you don't need to make estimated payments for the current year.
When calculating estimated tax, you must include all applicable taxes: regular income tax, self-employment tax (calculated on 92.35% of your net self-employment income), Alternative Minimum Tax if applicable, and any additional taxes like the Additional Medicare Tax or Net Investment Income Tax. However, don't include certain items that aren't required until the return is filed, such as recapture taxes or specific excise taxes.
For 2020 specifically, key figures include a Social Security tax wage base of $137,700, standard deductions of $24,800 for married filing jointly, $18,650 for head of household, and $12,400 for single filers. The adoption credit maximum was $14,300, and several tax provisions that had expired were extended through 2020, including the tuition and fees deduction and mortgage insurance premium deduction.
If you receive both wages with withholding and other income requiring estimated payments, you have options. You can make estimated tax payments using Form 1040-ES, or you can file a new Form W-4 with your employer to increase withholding from your wages to cover the additional tax. The same applies to pensions and annuities—use Form W-4P to increase withholding rather than making separate estimated payments if that's more convenient.
Step-by-Step (High Level)
Step 1: Determine if you need to pay estimated tax
Review your expected income for the year and compare it to your expected withholding and refundable credits. If you'll owe at least $1,000 after subtracting withholding and credits, and your prepayments won't meet the safe harbor thresholds, you need to make estimated payments.
Step 2: Gather your information
You'll need your prior year's tax return, information about expected income for the current year from all sources, anticipated deductions (either itemized or standard), expected credits, and any expected withholding from wages, pensions, or other payments. Have the current year's tax rate schedules handy.
Step 3: Complete the Estimated Tax Worksheet
Start by calculating your expected adjusted gross income, accounting for business deductions including the deduction for one-half of self-employment tax. Subtract your deductions and qualified business income deduction to arrive at taxable income. Apply the appropriate tax rates and add self-employment tax and other applicable taxes. Subtract expected credits to arrive at your total estimated tax.
Step 4: Calculate required payments
Multiply your total estimated tax by 90% to find one safe harbor threshold. Compare this to 100% (or 110% for high earners) of your prior year's tax. Your required annual payment is the smaller of these two amounts. Subtract any expected withholding to determine how much you need to pay through estimated payments.
Step 5: Divide into quarterly payments
If your first required payment is due April 15, divide the amount due by four. Each payment is generally one-quarter of your total required estimated tax. Fill out the payment vouchers with your name, address, Social Security number, and the amount you're paying.
Step 6: Make your payments
Choose your payment method: pay online through IRS Direct Pay (free bank account transfer), pay by debit or credit card (convenience fee applies), use the Electronic Federal Tax Payment System (EFTPS), pay by phone, use the IRS2Go mobile app, pay cash at participating retail partners, or mail a check or money order with the appropriate payment voucher to the address listed for your state. Electronic payment is encouraged for speed and convenience.
Step 7: Keep records
Track all payments made, including dates, amounts, and confirmation numbers. When you file your annual tax return, you'll report these estimated payments, and they'll be credited against your total tax liability.
Common Mistakes and How to Avoid Them
Underestimating income or overestimating deductions
Many taxpayers, especially those with variable self-employment income, guess at their annual income and end up significantly wrong. Avoid this by reviewing your income quarterly and adjusting future payments as your actual earnings become clearer. It's better to overpay slightly and receive a refund than to underpay and face penalties.
Forgetting about self-employment tax
Self-employed individuals must pay both the employee and employer portions of Social Security and Medicare taxes—a combined 15.3% on net earnings (though you only calculate this on 92.35% of your net profit, and you get to deduct half of the self-employment tax when calculating your income tax). This often catches new freelancers by surprise. Always include self-employment tax in your calculations using the worksheet provided with Form 1040-ES.
Missing the uneven quarterly schedule
The quarterly due dates aren't three months apart. The period from April 1 to May 31 is only two months, while other periods span three months. Some taxpayers mistakenly think "quarterly" means every three months and miss deadlines. Mark the specific dates—April 15, June 15, September 15, and January 15—on your calendar, and remember that if a due date falls on a weekend or holiday, the deadline moves to the next business day.
Applying the wrong safe harbor percentage
Higher-income taxpayers (adjusted gross income over $150,000) must use 110% of prior year's tax as their safe harbor, not 100%. If you had a good year previously and don't adjust for this higher threshold, you may face penalties even though you thought you'd paid enough. Always check which percentage applies to your situation.
Not adjusting for major life changes
Marriage, divorce, the birth of a child, starting a business, selling investments, buying a home—all these events can dramatically affect your tax liability. Review your estimated tax calculations whenever something significant changes in your life, and adjust your remaining payments accordingly. Don't just set it and forget it for the year.
Sending payments without proper identification
If you pay by check, always write "2020 Form 1040-ES" and your Social Security number on the check. Include the payment voucher with the correct name, address, and SSN printed clearly. Failure to properly identify payments can result in the IRS not crediting them to your account, leading to apparent underpayment when you actually paid on time.
Ignoring the option to increase withholding instead
If you have a regular job with withholding plus side income requiring estimated payments, consider simply increasing your paycheck withholding rather than making separate quarterly payments. This can be simpler administratively and provides the same penalty protection. File a new Form W-4 with your employer to increase withholding by the amount you would otherwise pay quarterly.
What Happens After You File
Form 1040-ES isn't actually "filed" in the traditional sense—you don't submit the worksheets to the IRS. Instead, you submit only your payments, either electronically or by mailing the payment vouchers with checks. The IRS processes each payment and credits it to your account under your Social Security number.
After you make each payment, keep detailed records including dates, amounts, confirmation numbers (for electronic payments), and copies of cancelled checks or money orders. These records are crucial because you'll need to report your total estimated tax payments when you file your annual Form 1040 or 1040-SR. On that annual return, your estimated payments are credited against your total tax liability for the year.
If you paid too much through estimated payments, you'll receive a refund when you file your annual return. You can choose to have that overpayment refunded to you or applied toward the next year's estimated tax. If you didn't pay enough, you'll owe the balance when you file, plus potentially an underpayment penalty depending on how much short you were and when the underpayments occurred.
The underpayment penalty is calculated based on how much you underpaid, when each payment was due, and how long the underpayment remained unpaid. The penalty rate is based on the federal short-term interest rate plus three percentage points, calculated for each quarter. However, the IRS generally calculates this penalty for you and includes it with your bill if you owe one—you don't need to figure it yourself unless you're filing Form 2210 to request a waiver or show that an exception applies.
Penalties may be waived if you retired after age 62 during the tax year, became disabled, experienced a casualty or disaster, had unusual circumstances making it unreasonable to expect you to make estimated payments, or if your underpayment was due to factors beyond your control. You request a waiver by filing Form 2210 with your return and explaining the circumstances.
If you change your name during the year (through marriage, divorce, or other reasons), notify the Social Security Administration before filing your annual return. Attach a statement to your paper return showing all estimated payments made and the names and Social Security numbers under which they were made. This prevents delays in crediting your payments properly.
Throughout the year, you can track your payments by looking them up in your IRS online account or calling the IRS. Electronic payments typically post within one to two business days. Mailed payments take longer to process, often two to three weeks or more during busy periods.
FAQs
Can I pay all my estimated tax at once instead of quarterly?
Yes. You can pay your entire estimated tax by the April 15 deadline rather than spreading it over four quarterly payments. This is perfectly acceptable and eliminates the need to track multiple payment dates. Some taxpayers prefer this approach if they have the funds available early in the year. However, most people find it easier to manage four smaller payments throughout the year rather than one large payment. If your income arrives unevenly—perhaps you earn most of your money late in the year—you might prefer to make larger payments later when you actually have the income, which the annualized income installment method accommodates.
What if I estimated my income wrong and already made payments?
Estimating incorrectly isn't a problem—it happens frequently, especially for self-employed individuals with variable income. Simply recalculate your expected annual tax using a new worksheet whenever your circumstances change. Then adjust your remaining quarterly payments to make up the difference. If you overestimated and paid too much early in the year, you can reduce or skip later payments. If you underestimated, increase your remaining payments to catch up. As long as you ultimately meet the safe harbor requirements by year end (paying at least 90% of current year's tax or 100%/110% of prior year's tax), you'll avoid penalties even if individual quarterly payments weren't perfect.
Do I need Form 1040-ES if I'm already having taxes withheld from my paycheck?
It depends on how much additional income you have without withholding. If your paycheck withholding will cover at least 90% of your total tax or meet the prior year safe harbor, you don't need to make estimated payments. Many people with side businesses or investment income simply increase their paycheck withholding instead of making separate estimated payments. File a new Form W-4 with your employer to have extra amounts withheld each pay period. This is often simpler than making quarterly estimated payments, and withholding is treated as paid evenly throughout the year for penalty calculation purposes, which can be advantageous.
What payment method is easiest and safest?
IRS Direct Pay is generally the easiest and safest method. It's free, transfers money directly from your checking or savings account, provides immediate confirmation numbers, and typically posts to your account within one to two business days. You can schedule payments in advance and modify or cancel them if needed. The IRS2Go mobile app offers similar functionality. Paying by credit or debit card is also convenient but involves convenience fees charged by the payment processors, typically around 2% of the payment amount. Mailing checks is still acceptable but slower—payments can take weeks to process, and checks can potentially get lost in the mail, so be sure to mail them well before deadlines and keep copies of everything.
How do I know if I'm subject to the underpayment penalty?
You can avoid the penalty by meeting any of these conditions: owing less than $1,000 after subtracting withholding and credits; paying at least 90% of the current year's tax through withholding and estimated payments; or paying at least 100% of last year's total tax (110% if last year's adjusted gross income exceeded $150,000). You also won't face a penalty if you had no tax liability last year and were a U.S. citizen or resident for the full year. The IRS typically calculates any penalty for you and sends a notice explaining the calculation. If you believe you qualify for a waiver due to unusual circumstances, casualty, disaster, retirement, or disability, file Form 2210 with your return to request relief.
Can I make my estimated tax payment electronically even if I'm close to the deadline?
Yes, electronic payments are accepted on the due date and even provide some flexibility. If you use IRS Direct Pay or similar electronic systems, payments made by 11:59 PM Eastern Time on the due date are considered timely. This can be a lifesaver if you've forgotten a deadline or need more time to gather funds. Some electronic payment systems allow you to schedule payments in advance, so you can set up all four quarterly payments in January if you prefer. Electronic payments post quickly and provide confirmation numbers for your records, making them superior to mailed checks in nearly every way. Just remember to save or print your confirmation number—that's your proof of payment.
What happens if I don't make estimated tax payments when I should?
If you fail to make required estimated payments, you'll likely owe an underpayment penalty when you file your annual return. The penalty is essentially interest on the unpaid amounts, calculated from each quarterly due date until you actually paid. The rate changes quarterly and is based on the federal short-term rate plus three percentage points. The penalty can add up to several hundred dollars or more depending on how much you owed and for how long. Even if you pay your full tax liability when you file your return by April 15, you can still owe the underpayment penalty for not paying throughout the year. The penalty applies separately to each underpaid quarter, so making at least some payments is better than making none. In severe cases of persistent failure to pay estimated tax when required, you could face additional compliance actions, though the IRS typically just assesses the penalty and moves on.
Sources:
When to Pay Estimated Tax - IRS
Underpayment of Estimated Tax Penalty - IRS
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