Quarterly Estimated Fed Tax Payments and SS/Med Tax

[freedomatlast]

I recently decided to do a short term engineering consulting gig as an independent contractor and the earnings will be significant. I also have unearned income for which taxes will need to be paid during the year.

For those that have experience with this type of thing, do you pay your quarterly estimated Federal tax payments using the EFTPS or is there a better way?

What about SS/Medicare tax? Do you just pay that when you file your taxes in one lump sum? Would there be any penalty for doing so?

Thanks.

 

[Catawba Chuck]

I use the EFTPS, it's quick, easy, paperless, and you don't have to depend on the US mail.

 

[audreyh1]

+1 Love eftps.

 

[latexman]

I didn't know what EFTPS is. It's The Electronic Federal Tax Payment System.

Sounds very nice!

 

[PaunchyPirate]

I also use EFTPS. Once set up and part of your routine, it's great.

 

[audreyh1]

In terms of paying SS and Medicare taxes - I think you have to pay those along with your estimated federal income taxes as they are computed together. Otherwise I expect you likely will owe a penalty. You need to have paid 90% of what you think you owe by Jan 15, and you may need to file form 2021 to show that most of your income occurred in the last quarter of 2020 to avoid penalty.

Unless your 2019 income was much lower in which case having met the safe harbor by paying at least 2019 taxes (or 110% of 2019 taxes if your 2019 income was high enough) in quarterly installments should avoid penalty.

 

[Ole Red 29]

I use the direct pay.

https://www.irs.gov/payments/direct-pay

 

[kaneohe]

If you have a 2% rewards credit card, you could pay with that and make a small amount (difference between 2% rewards and fee for using credit card).
You also might be able to get a extra 3 wks for actually paying the bill........you have to pay the tax on time w/ the credit card, but the payment for paying the credit card could be a little later.

You're supposed to figure in the self-employment tax (SS/medicare) when you calculate your estimated tax for current yr safe harbor. You may end up paying part of that for estimated tax (or not if prior yr safe harbor is lower).

 

[jebmke]

I use EFTPS; have for years. This year I set everything up automated. Full year of payment funds in my AMEX savings account. Scheduled push to checking 2 days prior to EFTPS pull. That way if the virus got me my wife didn't have anything to act on until April 2021.


When I filed our 2019 return I pushed the money through EFTPS on July 14.

 

[audreyh1]

I finally gave in and established a link from EFTPS to one of my high yield savings accounts, so I just make sure it’s loaded annually.

You can always open a second savings account if you want it isolated from other expenses.

 

[Gotadimple]

I think Direct Pay is good if you only make one payment a year - likely with your Federal Tax return. EFTPS is ideal if you need to make quarterly payments. I set those up for the year after I finish my tax return, then I don't need to remember to go into a tool like Direct Pay and send a payment.

After scheduling, you can print the schedule of payments, and EFTPS will send you an email notice each time it gets ready to debit your bank account. The downsides to EFTPS is that it does take time to set up the account, and unlike Direct Pay you cannot use a credit card. But it is very flexible, and if you need customer service I have found them to be very responsive.

- Rita

 

[audreyh1]

About a year ago EFTPS started sending out emails of confirmation for scheduled payments and reminders if a payment was scheduled well in advance letting you know the deadline for changes. It’s a nice enhancement.

 

[Ole Red 29]

looks like I need to look into using EFTPS for quarterly payments. This is the first year I have made quarterly payments and direct pay has worked for me, but sounds like EFTPS is better. thanks,