27

According to the United States internal revenue service, federal estimated tax payments are due on this schedule:

  • April 15
  • June 15
  • September 15
  • January 15 (of the next year)

June is only two months after April. I would expect estimated tax payments to be evenly spaced three months apart. Why are estimated taxes for the second and third quarter due a month earlier than I would expect? (I would expect July and October.)

I usually bill my clients at the end of the month. In June, taxes are due for the 3rd quarter, but I haven't even received the June payments yet. Do I owe taxes at that time on the money that I expect to receive that quarter, but which hasn't actually come in yet?

Improve this question
2
  • 2
    It would be more than "convenient." This seems particularly designed to mess with payers. A quarterly payment should be every 3 months -- not quibbling, no special circumstances. This is almost guaranteed to make a significant number of payers late by having payment #2 only 2 months after payment #1. While they then may be a month or more early for payment #4, that does NOT "even out" the fact that many people will put this on their calendars as a quarterly payment. This is just as onerous as when credit cards used to change their due dates so you monthly payment would be late, guaranteeing th
    – Nan
    Apr 9, 2017 at 20:19
  • 1
    I'd always thought it was to allow for a nice long summer vacation :-)
    – jamesqf
    Jul 10, 2017 at 16:34

4 Answers 4

Reset to default
14

Here's an answer copied from

https://www.quora.com/Why-is-the-second-quarter-of-estimated-quarterly-taxes-only-two-months

Estimated taxes used to be paid based on a calendar quarter, but in the 60's the Oct due date was moved back to Sept to pull the third quarter cash receipts into the previous federal budget year which begins on Oct 1 every year, allowing the federal government to begin the year with a current influx of cash. That left an extra month that had to be accounted for in the schedule somewhere. Since individuals and most businesses report taxes on a calendar year, the fourth quarter needed to continue to end on Dec 31 which meant the Jan 15 due date could not be changed, that left April and July 15 dues dates that could change. April 15 was already widely known as the tax deadline, so the logical choice was the second quarter which had its due date changed from July 15 to June 15.

The explanation for the Sept. payment makes sense. The rest doesn't. My favorite suspect would be the federal budgeting process. I think, that the standard process is to have a budget in Congress for debate by the beginning of Q3 (6 months to get next budget approved). Executive and Congress would likely prefer to have the Q2 money in the bank, rather than forecasted for a month in the future. They would have to estimate 5 quarters of income instead of 6 when they debate the budget.

Improve this answer
2
  • 4
    Interesting use of the word "logical" in the last sentence of that quote.
    – davidbak
    Dec 2, 2017 at 7:16
  • The April 15th Q1 date allows taxpayers to roll the previous year's refund into next year's estimated tax payment, as both are due on the same date. This is more efficient as it avoids the need for the taxpayer or government from coming up with extra cash that will eventually be returned.
    – user71659
    Mar 15, 2023 at 20:47
9

There are too many nuances to the question asked to explore fully but here are a few points to keep in mind.

  • If you are a cash-basis taxpayer (most individuals are), then you are not required to pay taxes on the money that has been billed but not received as yet. If you operate on an accrual basis, then the income accrues to you the day you perform the service and not on the day you bill the client.

  • You can make four equal payments of estimated tax on the due dates, and if these (together with any income tax withholding from wage-paying jobs) are at least 90% of your tax liability for that year, then you owe no penalties for underpayment of tax regardless of how your income varied over the year.

  • If your income does vary considerably over the year (even for people who only have wages but who invest in mutual funds, the income can vary quite a bit since mutual funds typically declare dividends and capital gains in December), then you can pay different amounts in each quarterly installment of estimated tax. This is called the annualization method (a part of Form 2210 that is best avoided unless you really need to use it). Your annualized income for the payment due on June 15 is 2.4 = 12/5 times your taxable income through May 31. Thus, on Form 2210, you are allowed to assume that your average monthly taxable income through May 31 will continue for the rest of the year. You then compute the tax due on that annualized income and you are supposed to have paid at least 45% of that amount by June 15. Similarly for September 15 for which you look at income through August 31, you use a multiplier of 1.5 = 12/8 and need to pay 67.5% of the tax on the annualized income, and so on. If you miscalculate these numbers and pay too little tax in any installment, then you owe penalties for that quarter.

Most people find that guesstimating the tax due for the entire year and paying it in equal installments is simpler than keeping track of nuances of the annualized method. Even simpler is to pay 100% of last year's tax in four equal installments (110% for high earners) and then no penalty is due at all. If your business is really taking off and your income is going to be substantially higher in one year, then this 100%/110% of last year's tax deal could allow you to postpone a significant chunk of your tax bill till April 15.

Improve this answer
5
  • 2
    So the quarters are different lengths? Q2 is only two months long and Q4 is four months long?
    – Stephen Ostermiller
    Nov 27, 2013 at 14:25
  • Yes, but the simplest version of Form 2210, and the default IRS calculation if you check the "Let IRS determine the underpayment penalty", is based on four equal quarterly installments. If estimated tax payments plus 25%, 50%, 75%, 100% of withheld taxes don't add up to (or exceed) the right amounts, you have underpaid your taxes for the corresponding quarter. More detailed calculations such as the annualization method allow you to take advantage of variable income, especially if a lot of the income is received in Q4, e.g. mutual fund gains distributions, clients settling bills by year-end etc
    – Dilip Sarwate
    Nov 27, 2013 at 14:37
  • 2
    Any clue as to the "why" part? Or is this just another instance of taxes being needlessly complex with no apparent reason?
    – Stephen Ostermiller
    Nov 27, 2013 at 14:40
  • 1. IRS does not know the details of how and when you earned income during the year. 2. The law can be whatever Congress decrees it must be. 3. Count your blessings. It could be much worse. I believe that California now demands that much larger fractions of estimated tax must be paid much earlier (2/3rds by June 15?).
    – Dilip Sarwate
    Nov 27, 2013 at 14:45
  • 4
    Was it congress that decreed that quarters are not of equal length?
    – Stephen Ostermiller
    Nov 27, 2013 at 14:46
1

I suspect that the payments were originally due near the end of each quarter (March 15, June 15, September 15, and December 15) but then the December payment was extended to January 15 to allow for end-of-year totals to be calculated, and then the March payment was extended to April 15 to coincide with Income Tax Return filing.

Improve this answer
-3
  1. It all evens out in the end.
  2. You want to give the government the money at the beginning of the year so it screws you harder.
  3. They are doing the consumers a favor: if you make the payment in October instead of September you won't have as much cash on hand for Black Friday.
Improve this answer
2
  • Yes it all comes out evenly in the end, but it would be more convenient if it were consistent. I'm interested to know why it is not consistent.
    – Stephen Ostermiller
    Nov 8, 2016 at 0:00
  • 1
    Despite being completely unhelpful, I find this answer hilarious.
    – squarecandy
    Jun 10, 2017 at 17:27

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .