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How To Pay Your 1040 Federal Estimated Taxes Online

While many new businesses do all the right things their first year, when it comes time to pay their estimated (ES) taxes their second year (ES taxes are not required for businesses in their first year) I have seen it become a significant task time and time again. Whether the small business owner forgets to save money to pay the taxes or just don’t know where to go, I hope this article helps you out with the process.

Lets start with your Federal taxes and do the Virginia ES taxes in a later post. New business owners should create an account on EFTPS.gov as soon as possible. If you wait until the last minute you won’t be able to pay your ES taxes for that quarter through this method, as you have to apply for a PIN number which comes via snail mail and takes a week.

Keep reading for how to use the EFTPS.gov website.

What if you don’t have an EFTPS.gov account?

If you don’t have an account through EFTPS.gov and need to pay your ES taxes, then use a 3rd party site like PayUSATax.com. I’ve done this before and it is pretty simple–the drawback to using this site is the fees associated with it. If you use a credit card, you’ll be charged a 1.87% “Convenience Fee” and on a 4-5 figure ES tax payment, that percentage can add up quickly ($187 on a $10,000 ES tax payment). In contrast, you can use your debit card but will only be charged $2.79 total. Not bad right?

One problem: Most banks won’t let you make a payment on your debit card for over a few thousand dollars. So if you do have a large tax bill you must create an account with EFTPS.gov above right away to avoid paying a ridiculously large fee.

Creating an account on the EFTPS.gov website

For most single-entity small businesses owners (1040 Schedule C Tax Filers) who find themselves new to ES Tax Payments, they should create an account using their Individual SSN and not their Business EIN. Why? Your ES Tax Payments technically come from you the “individual” and not your small business; they go on the back page of your 1040 and not your Schedule C or Schedule SE.

You’ll want to follow the instructions on the page and set up your bank account when you create your account before the IRS sends you your PIN. However take note: You will not be allowed to edit your bank account information without receiving a new PIN–which will take another week. I recommend small business owners make the payments out of their personal bank accounts and not their business accounts, as that account is less likely to change over the course of your business than your official business accounts. If you decide to add both a business bank and a personal bank account then that is an option too–its just that you’ll have 2 PINs instead of one. Keep track of your login information and remember which account your PIN is going to as you won’t want to make the mistake of overdrawing your account on a large payment.

Paying the Federal ES Payments Online

Go to EFTPS.gov and click “Make Payment.” You will be taken to a login screen where you will want to login with your SSN (as an individual) using the PIN created and internet password.

Select the tax form “1040 US Individual Income Tax Return” option then click “Next.” Then choose the first option on the list “Estimated 1040ES” and “Next” again. Next up is pretty simple, you enter your payment amount, the tax year and the settlement date. Take note you cannot make a payment for the same day as your settlement payment so if you go on the 15th of the month and try to make a payment, the earliest you can make it for is the 16th–1 day late.

Choose “Next” again and you’ll be taken to a screen that will allow you to review your information before you make the payment. Once its ready select “Make Payment” and you’ll be done. Please print or save an pdf on the next page for your records and submit with your tax return. It will save you a lot of time next year when you need to know how much you’ve paid your ES taxes for the prior year.

Note: There is no pay by credit card option. To pay by credit card you have to use a 3rd party site.

ES Tax Late Filing Penalty

If you are late in filing your ES tax payments, then your accountant will file Part 4 on Form 2210 or you can choose to have the IRS figure your penalty for you. You’ll be using a formula similar to this one from the worksheet on Page 6:

Amount of your ES Payment * Number of Days Late / 365 * 3% interest.

So if you had a $5000 ES tax payment due and you filed it 2 days late, your penalty would be:

$5000 * 2/365 * .03 = $0.82

That does not seem like a lot but it will add up with a larger ES Tax payment and even more if you’re late for weeks/months rather than days (the penalty hits almost $25 if you’re 2 months late or over $113 if you’re 9 months late).

Final Thoughts On Paying your ES Taxes

Every month you MUST save money toward your ES Taxes or the IRS will hit you with a penalty each quarter. The IRS does not care that you have rent due or that you need to feed yourself (which unfortunately is the case for many new small business owners); their reasoning is if you had a full time job that money would be taken out of your check and you wouldn’t see it anyway.

In addition, the stress from not saving the money in the first place could negatively impact your ability to perform at the level your business needs you to. In a pinch you could pay your ES taxes with your credit card outside of EFTPS.gov, but you’ll be paying the huge transaction fees for this “convenience.”

That is it for now and perhaps later on (maybe by the next quarter’s ES payment in January) I’ll cover how to pay ES taxes in Virginia.