You are, in most cases, required to make estimated tax payments to the IRS if you are self-employed, or if you expect to owe the IRS $1,000 or more when you file your 2021 tax return in 2022. You do not need to make estimated tax payments in 2021 if you had no tax liability for the 2020 tax year, you were a U.S. citizen or resident for the entire year, and your 2020 tax return covered a 12-month period for income. Here’s what you need to know about filing estimated taxes for the second quarter of 2021.
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When are 2021 Q2 estimated taxes due for self-employed individuals?
The tax system in the U.S. is “pay as you go,” so estimated taxes are due on a quarterly basis. The expectation is that each taxpayer will pay their estimated income and self-employment taxes due for the most recently-completed calendar quarter.
The due date for the second quarter’s taxes, covering the period of April 1 through May 31, 2021 is June 15, 2021. The IRS recently extended the individual tax filing deadline for 2020 returns and payments from April 15 to May 17, 2021. However, this extension does not impact quarterly estimated tax payments.
How do I calculate my Q2 estimated taxes?
If you believe you owe quarterly estimated taxes, you can use IRS Form 1040-ES. You will need to calculate your estimated adjusted gross income for the year, your taxable income, estimated deductions, and credits in order to arrive at your estimated payment amount.
It can help to use your last tax return as a guide to help determine these numbers, adjusting your estimated income amount for the year based on current projections. In the event you estimate too high or too low, you can adjust the calculations and quarterly remittance for the third quarter to compensate.
Will I owe taxes if I received a PPP loan which was forgiven?
Part of the tax relief provided under the CARES Act included forgivable Payroll Protection Program (PPP) loans for qualified small businesses. If recipients used loan proceeds for certain types of business expenses, up to the entire loan amount may be forgiven.
Discharged indebtedness is generally categorized as taxable income under the Internal Revenue Code. However, the CARES Act specifically excluded forgiven PPP loans from taxation. In other words, if you received a PPP loan and it was forgiven, the loan proceeds are not taxable.
What’s more, in January 2021, the IRS clarified and actually reversed previous guidance, stating that expenses paid with forgivable PPP loan proceeds may be tax deductible if the expenses would otherwise be eligible for tax deductions.
What are the different ways I can pay my quarterly taxes?
There are several ways you can remit your second quarter estimated tax payment. First, you can print and mail your 1040-ES form with a check. If you would rather pay online, you can do so using your bank account or with a credit or debit card (fees may apply). Another option is to pay using your phone or tablet using the IRS2Go app.
You could also use the IRS Electronic Federal Tax Payment System (EFTPS) to make federal tax deposits, installment agreement payments (if applicable), and quarterly estimated tax payments. In fact, you can use the EFTPS system to pay your estimated taxes more frequently than quarterly, making payments on a weekly, bi-weekly, monthly, or other periodic basis which may help some taxpayers with budgeting.
What happens if I do not pay my Q2 estimated taxes?
It may be tempting to put off paying your quarterly estimated taxes, thinking you will simply pay all of your taxes when you file your 2021 tax return next year. This, however, could be a costly mistake. If you do not pay enough throughout the year, through tax withholding from an employer’s wages or estimated tax payments directly to the IRS, you could be subject to underpayment penalties.
If, after factoring in taxes withheld and estimated payments, you owe less than $1,000 when filing your 2021 tax return or if the amount you paid was at least 90% of the taxes you owe for 2021 or 100% of the taxes owed for 2020, you will not face an underpayment penalty. Other limited exceptions may apply, including penalty waivers related to casualty losses, disasters, or other unusual circumstances that make the penalty inequitable, or if the underpayment was due to your retirement or disability and not willful neglect.
Plan ahead to meet your quarterly estimated payment obligations
Small business taxes can be confusing. Your state and local tax authorities may also require quarterly estimated payments, although the deadlines and methodology may differ from federal requirements. It is important to understand your obligations so you can be proactive about meeting them. If you need assistance calculating your estimated tax liability or have questions, ask a lawyer for help today.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.