Quarterly tax payments: four facts small business owners should know

by | Jan 15, 2024

With the deadline to make final 2023 quarterly estimated tax payments just around the corner (January 16), here are four facts you should know to avoid possible penalties :

1. Who needs to make a payment?

Taxpayers who receive income that is not subject to tax withholding, such as self-employed individuals or freelancers, are required to make quarterly tax payments to the IRS.

Furthermore, individuals who owed taxes when they filed their tax return for the current year often find themselves in a similar situation when filing the following year. Taxpayers who typically fall into this category include:

  • Those who previously itemized deductions but now claim the standard deduction.
  • Households with two wage earners.
  • Employees who receive non-wage income, such as dividends.
  • Individuals with complex tax scenarios.
  • Those who failed to adjust their tax withholding accordingly.

2. What income is taxable?

The IRS is reminding taxpayers that the majority of income is subject to taxation. This includes income from unemployment, interest earned on refunds, as well as income derived from the gig economy and digital assets. When making estimates for quarterly tax payments, taxpayers must consider all forms of earned income, such as income from part-time jobs, side gigs, or the sale of goods.

Additionally, it is important to note that various financial transactions, particularly those occurring toward the end of the year, may have unexpected tax implications. Some examples include year-end and holiday bonuses, lottery winnings, dividends from stocks, capital gains distributions from mutual funds, as well as profits made from the sale of virtual currency, real estate, or other properties.

3. Delay in requirement for Forms 1099-K

The IRS has confirmed that the upcoming year, 2024, will be considered a transition period for the reduced reporting threshold of $600, following feedback from taxpayers, tax professionals, and payment processors. During this period, third-party settlement organizations that issue Forms 1099-K will only be obligated to report transactions if the gross payments exceed $20,000 and there are more than 200 transactions. To assist individuals who may receive these forms, the IRS has also released this​ fact sheet.​

4. How to make an estimated tax payment

The most efficient and convenient method to submit an estimated tax payment is to do so electronically. Taxpayers are provided with various options when it comes to making electronic payments from their bank accounts. 

  • One option is to make a payment through ​IRS Direct Pay,​ which allows taxpayers to schedule payments in advance of the January 16 deadline. 
  • Another option is to use the ​IRS Online Account​, which enables taxpayers to access their payment history, view pending or recent payments, and obtain other tax-related information. 
  • Taxpayers can also opt to utilize the ​Electronic Filing Tax Payment System (EFTPS​), a free system that offers features such as scheduling payments up to a year in advance, submitting estimated tax payments, and tracking and modifying scheduled payments. 
  • In addition, taxpayers have the choice to pay with their debit or credit cards. However, it is important to note that the fees for this service are charged by the card processors and not by the IRS. By utilizing these electronic payment options or exploring other available methods, taxpayers can ensure that their payments are promptly credited. For further information on alternative payment options, please visit ​IRS.gov/payments.​