Estimated Taxes Fall Short of tax liability — how do I pay extra online (Federal and NYS)
If you qualify for the safe harbor, you are not required to pay additional quarterly taxes.  Of course, you're still welcome to do so if you're sure you'll owe them; however, you will not be penalized. If your income is over $150k (joint) or $75k (single), your safe harbor is: Estimated tax safe harbor for higher income taxpayers. If your 2014 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2015 or 110% of the tax shown on your 2014 return to avoid an estimated tax penalty. Generally, if you're under that level, the following reasons suggest you will not owe the tax (from the IRS publication 505): The total of your withholding and timely estimated tax payments was at least as much as your 2013 tax. (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen.) The tax balance due on your 2014 return is no more than 10% of your total 2014 tax, and you paid all required estimated tax payments on time. Your total tax for 2014 (defined later) minus your withholding is less than $1,000. You did not have a tax liability for 2013. You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000. If you paid one-fourth of your last year's taxes (or of 110% of your last-year's taxes) in estimated taxes for each quarter prior to this one, you should be fine as far as penalties go, and can simply add the excess you know you will owe to the next check.
The W4 specifies withholding for income taxes, FICA taxes are not impacted. The tax withholding is do that you do not need to make estimated tax payments. Failing to make sufficient quarterly estimated tax payments or withholding a sufficient amount could result in you being hit with under payment penalties but nothing more. The under payment penalties will be figured out as part of you income tax return.  What you should have done when you discovered this was use the extra withholding line on the W4 to further increase your withholding. The nice thing about withholding is that you back load it and the IRS does not care.  The company has no liability here. It is your responsibility to update them when your personal circumstances change. You will be fully responsible for the tax bill.  There is no company paid portion of your income tax so they are not impacted. The company only pays an employer share of FICA and that is not impacted by how you fill out the W4. First thing to do is figure out how much you owe the IRS. Then determine if you can pay it or if you need to investigate an installment option. In any case make sure to file your return on time. How do I report this on our income tax return? You should include it on Line 7 of your Form 1040.   Additionally, you should report the extra payment to your employer if it was greater that $20. You can use From 4070 to do this if your employer does not provide you with a form. And finally, you are right, you should Form 4137 to report any tips that you include on your Form 1040 in order to pay the required social security and medicare taxes.   Credit is due to glibdud and Nathan L for constructive feedback! Thanks! "You are on the right track, for tax purposes its all ordinary income at the end of 2016. If the free lance ""employer"" will withhold fed,state and local tax, then that takes care of your estimated tax. If they can't or won't, you will need to make those estimates and make payments quarterly for the fed and state tax at your projected tax liability.  Or, you can bump up withholding by your day job employer and cover your expected tax liability at year end without making estimated tax payments." "I assume your employer does standard withholding?  Then what you need to do is figure what bracket that puts you in after you've done all your normal deductions.  Let's say it's 25%.  Then multiply your freelance income after business expenses, and that's your estimated tax, approximately.  (Unless the income causes you to jump a bracket.) To that you have to add approximately 12-13% Social Security/Medicare for income between the $90K and $118,500.  Filling out Form 1040SSE will give you a better estimate. But there is a ""safe harbor"" provision, in that if what you pay in estimated tax (and withholding) this year is at least as much as you owed last year, there's no penalty.  I've always done mine this way, dividing last year's tax by 4, since my income is quite variable, and I've never been able to make sense of the worksheets on the 1040-ES." You can file a revised W-4 with your employer claiming more allowances than you do now. More allowances means less Federal tax and (if applicable and likely with a separate form) less state tax. This doesn't affect social security and Medicare with holding, though.  That being said, US taxes are on a pay-as-you-go system. If the IRS determines that you're claiming more allowances than you're eligible for and not paying the proper taxes throughout the year, they will hit you with an underpayment penalty fee, which would likely negate the benefits of keeping that money in the first place. This is why independent contractors and self-employed people pay quarterly or estimated taxes. Depending on the employer, they may require proof of the allowances for adjustment before they accept the revised W-4. "It's likely you don't have to make estimated tax payments if this is your first year of contracting (extra income), and your existing salary is already having taxes withheld. If you look at the 1040-ES: General Rule In most cases, you must pay estimated tax for 2014 if both  of the   following apply. This is easier to understand if you look at the worksheet.  Look at line 14b/14c and the associated instructions.  14b is your required annual payment based on last year's tax.  14c is the lesser of that number and 14a, so 14b is your ""worst case"".  14c is the amount of tax you need to prepay (withholding counts as prepayment). I'm going to apply this to your situation based on my understanding, because it's not easy to parse:" As @littleadv's comment on your question said, it is unlikely that you and your husband paid a total of $5K in income tax on $185K of wages in 2013. More likely, your 2013 tax return (assumed to be a Married Filing Jointly tax return) showed that you had not arranged to have  enough tax withheld from your salaries and thus you still owed $5K  to the IRS for 2013 taxes. Most likely, that $5K sum included not just the unpaid amount of tax but also  penalties for not paying enough income tax during 2013 and interest on the amounts not paid on time.  Just to be clear, note that the income tax you paid for 2013 during 2013 is the total of all income tax withheld from your wages by your employers (plus any estimated tax payments that you might have made for 2013). If your 2014 tax return (that you will be filing by April 15, 2015)  will likely show a similar amount due for 2014 taxes, you can avoid  the penalties and interest by increasing  your income tax withholding by a substantial amount for the remainder of 2014. If you are paid monthly and have two paychecks still to be received, then having $2500 extra withheld from each paycheck will cover the $5K shortfall that you expect to have for 2014 taxes. I assume that this is what your husband intended you to do, and to do  this, you need to fill out a new W-4 Form (asking that an addiitonal  $2500 be withheld from each paycheck) and give this form to your employer soon (i.e. well before Payroll processes your next paycheck which usually happens a few days before you get the paycheck).  If you do so, your take-home pay will be reduced by $2500 on each of the next two monthly paychecks because your employer will withhold this extra amount from your pay and include it in the amount sent to the IRS as income tax withheld from your paycheck. After your last paycheck for 2014 has been received, you should submit a new W-4 Form to your asking for only $417 in extra income tax to be withheld from each paycheck starting January 1, 2015, so that  the expected $5K shortfall for 2015 is paid in 12 equal monthly installments. If you neglect to do this, your employer will continue to withhold $2500 extra as income tax, and you will get $2500 less in take-home pay month after month in 2015. This money will not disappear forever; come 2016 when you file your income tax return for 2015, you will receive a substantial refund because you overpaid income tax by a lot during 2015. You will not, however, receive any interest on the amount that the IRS is returning to you unless the IRS delays in sending you the refund for some reason.  Alternatively, you can file a new W-4 asking for no additional tax to be withheld from 2015 paychecks, and a year from now, go through the same exercise as above: have $2500 extra withheld from the last two paychecks for 2015, right when the holidays are coming and people are shopping for gifts. "The heart of the question is: why can't Bill just pay whatever he owes based on his income in that quarter? If Q2 is gang busters, he'll increase his tax payment. Then if Q3 is surprisingly slow, he'll pay less than he paid in Q2. I think what's most interesting about this question is that the other answers are geared towards how a taxpayer is supposed to estimate taxes. But that's not my objective -- nor is it Bill's objective. My [his] real objective is:  In other words, the answer to this question either needs to deal with not overpaying, or it needs to deal with mitigating the underpayment penalty. AFAICT, there are 2 solutions: Solution 1 Figure your estimated taxes based on last year's tax. You won't owe a penalty if your withholding + estimated tax payments in each quarter are 25% or more of your previous year's tax liability. Here's the section that I am basing this on: http://www.irs.gov/publications/p505/ch04.html Minimum required each period.   You will owe a penalty for any 2011 payment period for which your estimated tax payment plus your withholding for the period and overpayments for previous periods was less than the smaller of: 22.5% of your 2011 tax, or 25% of your 2010 tax. (Your 2010 tax return must cover a 12-month period.) Solution 2 Use the ""Annualized Income Installment Method"". This is not a method for calculating estimated taxes, per se. It's actually a method for reducing or eliminating your underpayment penalty. It's also intended to assist tax payers with unpredictable incomes. If you did not receive your income evenly throughout the year (for example, your income from a shop you operated at a marina was much larger in the summer than it was during the rest of the year), you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Emphasis added. In order to take advantage of this, you'll need to send in a Schedule AI at the end of the year along with a Form 2210. The downside to this is that you're basically racking up underpayment penalties throughout the year, then at the end of the year you're asking the IRS to rescind your penalty. The other risk is that you still pay estimated taxes on your Q2 - Q4 earnings in Q1, you just pay much less than 25%. So if you have a windfall later in the year, I think you could get burned on your Q1 underpayment." "Everything is fine.  If line 77 from last year is empty, you should leave this question blank. You made estimated tax payments in 2015.  But line 77 relates to a different way to pay the IRS.  When you filed your 2014 taxes, if you were owed a refund, and you expected to owe the IRS money for 2015, line 77 lets you say ""Hey IRS, instead of sending me a refund for 2014, just keep the money and apply it to my 2015 taxes.""  You can also ask them to keep a specified amount and refund the rest.  Either way this is completely optional. It sounds like you didn't do that, so you don't fill in anything here.  The software should ask you in a different question about your estimated tax payments." This is wrong.  It should be  or  Now, to get back to self-employment tax.  Self-employment tax is weird.  It's a business tax.  From the IRS perspective, any self-employed person is a business.  So, take your income X and divide by 1.0765 (6.2% Social Security and 1.45% Medicare).  This gives your personal income.  Now, to calculate the tax that you have to pay, multiply that by .153 (since you have to pay both the worker and employer shares of the tax).   So new calculation  or they actually let you do  which is better for you (smaller).   And your other calculations change apace.   And like I said, you can simplify Q1se to  and your payment would be  Now, to get to the second quarter.  Like I said, I'd calculate the income through the second quarter.  So recalculate A based on your new numbers and use that to calculate Q2i.   or  Note that this includes income from both the first and second quarters.  We'll reduce to just the second quarter later.  This also has you paying for all of June even though you may not have been paid when you make the withholding payment.  That's what they want you to do.   But we aren't done yet.  Your actual payment should be  or  Because Q2ft and Q2se are what you owe for the year so far.  Q1ft + Q1se is what you've already paid.  So you subtract those from what you need to pay in the second quarter.  In future quarters, this would be  All that said, don't stress about it.  As a practical matter, so long as you don't owe $1000 or more when you file your actual tax return, they aren't going to care.  So just make sure that your total payments match by the payment you make January 15th.   I'm not going to try to calculate for the state.  For one thing, I don't know if your state uses Q1i or Q1pi as its base.  Different states may have different rules on that.  If you can't figure it out, just use Q1i, as that's the bigger one.  Fix it when you file your annual return.  The difference in withholding is going to be relatively small anyway, less than 1% of your income. "I'm mostly guessing based on existing documentation, and have no direct experience, so take this with a pinch of salt. My best understanding is that you need to file Form 843. The instructions for the form say that it can be used to request: A refund or abatement of a penalty or addition to tax due to    reasonable cause or other reason (other than erroneous written    advice provided by the IRS) allowed under the law. The ""reasonable cause"" here is a good-faith confusion about what Line 79 of the form was referring to. In Form 843, the IRC Section Code you should enter is 6654 (estimated tax). For more, see the IRC Section 6654 (note, however, that if you already received a CP14 notice from the IRS, you should cross-check that this section code is listed on the notice under the part that covers the estimated tax penalty). If your request is accepted, the IRS should issue you Notice 746, item 17 Penalty Removed: You can get more general information about the tax collection process, and how to challenge it, from the pages linked from Understanding your CP14 Notice" The key for you  this year (2015) be aggressive in paying the taxes quarterly so that you do not have to do the quarterly filings or pay penalties for owing too much in taxes in future years.  The tax system has a safe harbor provision. If you have withheld or sent via the estimated quarterly  taxes an amount equal to 100% of the previous years taxes then you are safe. That means that if you end to the IRS in 2015 an amount equal to 100% of your 2014 taxes then in April 2016 you can avoid the penalties. You should note that the required percentage is 110% for high income individual.  Because you can never be sure about your side income, use your ability to adjust your W-4 to cover your taxes. You will know early in 2016 how much you need to cover via withholding, so make the adjustments. Yes the risk is what you over pay, but that may be what you need to do to avoid the quarterly filing requirements. From IRS PUB 17: If you owe additional tax for 2014, you may have to pay estimated tax   for 2015. You can use the following general rule as a guide during the year to   see if you will have enough withholding, or if you should increase   your withholding or make estimated tax payments.  General rule.    In   most cases, you must pay estimated tax for 2015 if both of the   following apply. You expect to owe at least $1,000 in tax for 2015, after subtracting your withholding and refundable credits. You expect your withholding plus your refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2015 tax return, or 100% of the tax shown on your 2014 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers , later). Your 2014 tax return must cover all 12 months. and  Estimated tax safe harbor for higher income taxpayers. If your 2014   adjusted gross income was more than $150,000 ($75,000 if you are   married filing a separate return), you must pay the smaller of 90% of   your expected tax for 2015 or 110% of the tax shown on your 2014   return to avoid an estimated tax penalty. It would be quite the trick for (a) the government to run all year and get all its revenue in April when taxes are due and (b) for people to actually save the right amount to be able to cut that check each year. W2 employers withhold the estimated federal and state taxes along with the payroll (social security) tax from each paycheck. Since the employer doesn't know how many kids you have, or how much mortgage interest, etc you will take deductions for, you can submit a W4 form to adjust withholdings.   The annual Form 1040 in April is to reconcile exact numbers, some people get a refund of some of what they paid in, others owe some money.  If one is self-employed, they are required to pay quarterly estimated taxes. And they, too, reconcile exact numbers in April. I went through this too. There's a safe-harbor provision. If you prepay as estimated tax payments, 110% of your previous year's tax liability, there's no penalty for underpayment of the big liquidity-event tax liability.  https://www.irs.gov/publications/p17/ch04.html That's with the feds. Your state may have different rules. You would be very wise indeed to hire an accountant to prepare your return this year. If I were you I'd ask your company's CFO or finance chief to suggest somebody.   Congratulations, by the way. They will not send a bill, though there's a chance they will eventually send an accusatory letter.  You must proactively pay your taxes. The simplest route is to send a check to each taxing authority with the respective full amounts due.  I wouldn't bother calling them.  You could also file amended returns with each containing the correct information.  As a general rule, tax advisors tend to counsel against giving bank account information to the IRS for payment purposes (as opposed to refund purposes), both to protect the timing of payment and to make it slightly more difficult for them to seize or lien your account. If you choose to send a check, you can use Form 1040-V and NY Form IT-201-V.  Please triple check your Social Security Number matches your tax return SSN, so they correctly credit you for payment.  You may include an explanation of the closed account if you are feeling either fearful or contrite, but if the amount due is paid in full, then neither taxing authority should really care about your error.