Overview

Taxes aren’t always automatically taken out of the income you earn. For some taxpayers, that means making estimated tax payments throughout the year to help cover what they expect to owe. In this guide, Zayas Tax and Business Solutions LLC’s tax preparers explain how quarterly tax payments work, who needs to make them, and how to stay on top of your tax obligations.

Introduction

A steady income doesn’t always mean your tax obligations are being covered along the way. When taxes aren’t withheld from certain earnings, or the amount withheld isn’t enough, you’ll need to make estimated tax payments rather than wait until you file your return.

Understanding these payments can make it easier to plan ahead and avoid being caught off guard at tax time. In this blog post, Zayas Tax and Business Solutions LLC breaks down how estimated taxes work, when they apply, and what goes into calculating and making payments so you can approach your tax obligations with a clearer idea of what to expect.

What Are California Estimated Tax Payments?

California estimated tax payments let you pay toward your expected state income tax during the year instead of waiting until you file your return. You’ll also hear them referred to as quarterly tax payments, even though California doesn’t split them into four equal installments.

You might need to make these payments when the taxes withheld from your income aren’t enough to cover what you’re expected to owe. How much you pay depends on your individual tax situation.

State and federal estimated taxes are handled separately. California payments go to the state, while federal payments go to the IRS and follow a different payment schedule.

What’s the Difference Between Federal and California Estimated Taxes?

Federal and California estimated taxes go to two different tax agencies. Federal payments are made to the IRS and go toward what you expect to owe in federal income tax. California payments are made separately to the Franchise Tax Board (FTB) and go toward your state income tax.

The two systems serve a similar purpose, but they don’t follow all the same rules. Payment amounts and schedules can differ, so paying one doesn’t automatically cover the other.

If both apply to you, you’ll need to account for each obligation separately throughout the year.

Who Has To Pay Quarterly Taxes?

If taxes aren’t being taken out of all the money you earn, you may be responsible for paying some of that tax yourself throughout the year. The general threshold is $500 or more left to pay after withholding and credits, or $250 if you’re married or in a registered domestic partnership and file separately.

Those who may need to make quarterly tax payments include:

Self-employed individuals
Freelancers and independent contractors
Sole proprietors and business owners
People who receive significant investment income
Landlords with taxable rental income
W-2 employees who don’t have enough tax withheld

Being on this list doesn’t automatically mean you’ll have to pay. Your expected tax liability, withholding, and available credits all help determine whether payments are necessary.

How Are Quarterly Tax Payments Calculated?

Quarterly tax payments aren’t a standard amount that applies to everyone. What you need to pay depends on your individual tax situation and the amount you expect to owe for the year.

Here’s how the calculation generally works:

Estimate your income: Determine what you expect to earn for the year
Determine your tax liability: Estimate your total tax obligation for the year
Check your payment threshold: Determine how much you need to prepay
Account for withholding: Factor in taxes already being withheld
Determine your installments: Apply California’s payment schedule

The remaining amount helps determine what you need to pay throughout the year. The safe harbor rules can also affect how much you need to pay to avoid an underpayment penalty, particularly when using your current or previous year’s tax as a benchmark.

How Is Your Tax Liability Determined?

Your tax liability is the total amount of tax you expect to owe for the year before figuring out your quarterly payments. To estimate it, start with your expected annual income and account for qualifying deductions to determine your taxable income.

The applicable tax rates are then applied to your taxable income to calculate what you owe. Depending on your situation, other tax rules and credits can affect the final amount.

Think of this number as your starting point. Once you know your expected tax bill, you can account for withholding and other payments to determine how much still needs to be covered during the year.

How Does Tax Withholding Affect Estimated Payments?

Tax withholding reduces the amount you may need to pay on your own because it’s money that has already been set aside for taxes. The more that’s withheld from your income during the year, the less you may have left to cover yourself.

For example, if you expect to owe $5,000 for the year and $4,000 will already be withheld, you would have a $1,000 difference to account for. If enough is withheld to meet your payment requirements, you may not need to make additional payments at all.

This is why withholding should be considered before determining how much you need to pay throughout the year.

How Does the Safe Harbor Rule Work?

The safe harbor rule gives you a way to avoid an underpayment penalty when your final tax bill ends up being different from what you estimated. Instead of having to predict your taxes exactly, you can meet certain payment thresholds during the year.

For many taxpayers, this generally means paying at least 90% of the current year’s tax or 100% of the previous year’s tax. Different requirements apply to certain higher-income taxpayers.

Meeting the applicable threshold protects you from an underpayment penalty, even if you still have a balance to pay when you file your return.

When Are Estimated Taxes Due?

Estimated taxes are paid at several points throughout the year rather than all at once. California generally schedules payment periods in April, June, September, and January of the following year. However, the amount due isn’t split evenly across those four periods.

For most individuals, the state generally requires:

30% in April
40% in June
0% in September
30% in January

That 0% can make the September deadline confusing. While September is considered a payment period, most individuals don’t have an installment due at that time under the standard schedule.

Exact due dates can shift when they fall on a weekend or holiday, so taxpayers should check the current FTB schedule before making a payment.

How Do You Make Your Tax Payments?

Once you know how much you need to pay, you can submit your payment directly to the California Franchise Tax Board (FTB). Depending on your preference, payments can generally be made online or by mail.

Before submitting anything, double-check the amount, due date, and payment period. Keep a record of each transaction so you know exactly what has already been paid when it’s time to file your return.

You can stay on top of these payments by calculating what you expect to owe and keeping clear records of what you’ve already paid. This becomes especially important if your income changes during the year, since you may need to revisit your calculations and adjust upcoming payments.

What Is the Penalty for Not Paying Estimated Taxes?

The penalty for not paying enough estimated tax in California is generally based on the amount you underpaid and how long it remained unpaid. Rather than charging one set fee, the state calculates the penalty using an interest-based rate that can change over time.

This means the longer an underpayment remains outstanding, the more you could potentially owe. Paying the full balance when you file your return doesn’t necessarily erase the penalty because the required amount was due earlier in the year.

Certain exceptions may apply, so not every underpayment will result in the same charge.

How Can a Tax Preparer Help With Estimated Taxes?

A tax preparer can help with estimated taxes by calculating what you’re likely to owe and how much you should pay throughout the year. They’ll look at your income, withholding, deductions, and credits to get a clearer picture of your situation.

If your income changes, those original calculations may no longer reflect what you’ll owe. Your preparer can update the numbers and help you determine whether your upcoming payments should change.

They can also keep track of what you’ve already paid, watch for potential shortfalls, and help you stay on schedule so there are fewer surprises when tax time arrives.

Get Help With Tax Preparation

Estimated taxes are easier to manage when you know what you owe and when you need to pay it. Staying on top of your income, withholding, and payments throughout the year can help you avoid unexpected balances and make tax time less stressful.

Zayas Tax and Business Solutions LLC can help you make sense of your tax situation and determine what needs your attention throughout the year. With professional tax preparation and support, you can approach each payment with a clearer understanding of where you stand.

Have questions about your estimated taxes? Contact us at (760) 755-7180 to get the guidance you need.

How Do Estimated Tax Payments Work?