If you receive income during the year which does not have tax withheld from it, you may be required to pay estimated taxes. This type of income includes funds from your own business, a job that does not withhold taxes, capital gains, dividends, alimony and more.
You may also pay estimated taxes if you have chosen not to have taxes taken out of income you receive that can be taxed, such as unemployment insurance or the taxable part of your Social Security payments.
It is each individual’s responsibility to pay estimated taxes and to know whether periodic payments are required. Penalties may be applied if quarterly estimated payments are not made.
Estimated Tax Payments in Maryland vs. Federal Estimated Taxes
Both the United States Internal Revenue Service (IRS) and the State of Maryland want to receive their taxes on a quarterly basis. Government entities in general want taxes paid on an ongoing basis (“pay as you go”), rather than in one large payment sent on April 15th.
Paying quarterly reduces the chances that you will underpay taxes. Underpayment is subject to tax penalties.
Finally, if you do not pay estimated taxes on time, you may be assessed interest on late payments. This is true both for Maryland as well as the IRS.
The Federal Government
Estimated taxes to the IRS are due in quarterly installments.
They are due on:
- April 15 (first quarter of calendar year)
- June 15 (second quarter)
- September 15 (third quarter)
- January 15 (for the fourth quarter of the previous calendar year)
If any of these dates fall on a weekend day, the due date rolls over to the next week day that is not a holiday. That is, if January 15 falls on a Sunday and is followed by Martin Luther King, Jr.’s birthday, a Federal holiday, the tax payment is due on January 17.
The IRS provides a form, 1040-ES, that will help individuals calculate their tax. It also provides quarterly vouchers that can be included with payment. Taxes can be paid via check or electronically.
If you receive the majority of untaxed income in one quarter rather than year-around, it is possible to pay estimated tax only in the quarter in which you receive the income. People who receive untaxed capital gains at the end of the year, for example, can pay estimated tax only in the fourth quarter period.
In Maryland, the government has specific requirements for the total estimated quarterly tax. They must be paid in four quarterly installments, each worth 25% of the total due, in a timely manner.
They must also total 90% of the state income tax on your income for the current year or 110% of the previous year’s state tax you paid.
When You Need a Tax Attorney
If you need advice on your estimated taxes, have been assessed penalties for late payments, or need to implement an IRS payment plan to get up to date on your tax obligation, you should seek competent tax counsel.
Rosenberg Martin Greenberg, LLP is experienced in all aspects of Federal and state taxation, including provisions relating to estimated taxes, Federal taxes, and Maryland taxes.
Please contact 410.727.6600 or e-mail us today for a free consultation.
- Bell, Kay. “The Skinny on Paying Estimated Taxes: What You Need To Know To Avoid the Ire of the IRS.” Bankrate. January 11, 2017. http://www.bankrate.com/finance/taxes/the-skinny-on-paying-estimated-taxes-1.aspx
- Comptroller of Maryland. Spotlight on Maryland Taxes. Estimated Tax Payment Amounts. http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Payment_Information/Estimated_Tax_Payments/Estimated_Tax_Payment_Amounts.shtml
- United States Internal Revenue Service. “About 1040-ES, Estimated Tax for Individuals.” https://www.irs.gov/forms-pubs/form-1040-es-estimated-tax-for-individuals