If you're self-employed, work as an independent contractor, or run a business, you may have to make estimated tax payments. Normally they're due in April, June, September, and January, and paying late could have financial consequences, including penalties owed to the IRS.
This year, however, the IRS has changed tax filing deadlines as a result of coronavirus. That means you won't have to pay some of your estimates on the normal due dates -- but you may not want to wait until the extended deadlines if you don't have to.
What are the new due dates for estimated taxes?
As of now, deadlines for estimated taxes for the 2020 tax year are:
- July 15 for the first and second estimates
- Sept. 15 for the third estimate
- Jan. 15, 2021 for the fourth estimate
The IRS has changed the deadlines for the first two estimates, which would normally have been due on April 15 and June 15. The first two estimates are now both due on the same day: July 15, 2020. This is also the new deadline for filing 2019 taxes and for paying any outstanding balance you owe for last year.
Initially, the IRS changed the due date for the first estimate to July at the same time that it changed the filing deadline for 2019 taxes -- but did not change the June date for the second estimate. This confusing rule modification meant the second estimate was due before the first one. This was later corrected when the IRS moved some additional deadlines in light of the filing delays necessitated by COVID-19.
However, as of now, the other two deadlines for your 2020 estimated taxes remain unchanged. You will still have to make your third estimated tax payment by Sept. 15, and your last payment will still be due on Jan. 15, 2021.
Why you might not want to wait to pay your estimated taxes
Although you have more time to make your first two estimated tax payments, waiting could create a serious financial burden.
If you delay your first and second estimates to July 15, 2020, you'll need to pay two estimates at one time -- assuming you earned income in both of the first two quarters of this year. And if you still owed any money to the IRS from 2019, you'll also have to pay that. So you could end up having to come up with a huge lump sum of money all at once. And you'll have only a short time until the September estimate is due and you have to pay more.
One reason estimated tax payments are due throughout the year is so you pay taxes as you earn income, rather than having to keep track of what you'll owe and submit a large lump sum.
When you're covering all your own tax costs and you don't have an employer to withhold money from your paycheck, you could find yourself without the funds you need to pay the IRS if you don't save for taxes over time. This problem will be exacerbated if you wait until July 15 to pay the tax due on all the income you've earned since January.
Pay your estimated taxes ASAP if you can
Just because the IRS has given you more time to make estimated tax payments does not mean you have to use it. If you have the money, you can make your payments on schedule rather than delaying until July 15.
When the later deadline comes and you don't have to try to come up with a fortune to give the IRS for two estimated payments at once, you'll be very glad you kept to your schedule and paid as normal.