C corporations must make estimated tax payments on a quarterly basis to avoid incurring the IRS’s wrath. In this post, we’ll explain everything you need to know about estimated taxes for C-corps, so you can handle your quarterly payments like a boss.
Are C Corporations Required to Make Estimated Tax Payments?
The IRS requires that C corporations pay quarterly estimated taxes if the business
expects their estimated tax, which is income tax minus credits, to be $500 or more.
When Do C Corps Need to Pay Estimated Taxes
The IRS requires that estimated taxes are paid on the following dates:
- April 15th
- June 15th
- September 15th
- January 15th
If the deadline falls on a weekend or legal holiday, the due date falls back to the next business day. Be mindful of the date because you will face an underpayment penalty if you miss the deadline.
Penalties for Underpayment of Estimated Tax
If you miss the deadline, you might receive a letter from the IRS issuing a penalty for Underpayment of Estimated Tax.
If you run into this issue, you have to submit Form 2220 to pay the penalty and remedy the complaint.
How Do C Corps Need to Pay Their Estimated Taxes?
Corporations must pay by an electronic funds transfer using the Electronic Federal Tax Payment System (EFTPS). Businesses can elect to have a tax professional, payroll service, or other trusted third party make a same-day wire payment for the business, but doing so may incur an extra fee.
Required Tax Returns and Forms for C Corporations
The federal and state governments require C corporations to submit several tax forms throughout the year:
- Form 1120-W Corporate Income Tax Return: This form reports the business’s income and deductions. While quarterly taxes are encouraged to be paid online through the EFTPS, businesses can use Form 1120-W to help estimate the taxes they are required to pay every quarter.
- State Corporate Income Tax Return: This form depends on the state in which you conduct business. It reports the business’s income and deductions and calculates the state tax owed.
- Form 941 Quarterly Employer Payroll Tax Return: This form reports the wages paid to employees, the federal income taxes that were withheld, the Medicare and Social Security taxes and any deposits of quarterly payroll taxes and withheld amounts.
- State Quarterly Payroll Tax Return: Just like federal payroll tax returns, the business needs to submit the same information to the state. The state payroll tax return also takes into account workers’ compensation insurance, unemployment insurance, disability insurance and state income tax withholding.
How to Estimate Tax Payments for C Corps
Using the 1120-W form as a worksheet, you’ll want to follow these steps to estimate your quarterly tax payment:
- Determine your taxable income.
- Multiply the taxable income by 21%, which is the corporate tax rate.
- Add tax credits and subtract from the taxes owed.
- Add any additional taxes owed, like base erosion minimum tax or recaptured tax credits.
- Deduct any refundable credits.
- If the tax liability is greater than $500, you’ll need to pay.
- Enter your previous year’s taxes owed. If last year’s taxes are less than the estimated taxes for the current year, use last year’s paid taxes for the next step.
- Divide the taxes owed by four to determine your estimated tax payment for each quarter.
- Pay the estimated tax payment on each of the four due dates during the year using the EFTPS.
Aren’t sure what tax credits your business is eligible to claim? Contact us to maximize the tax credits you can claim.
Frequently Asked Questions
Here are the answers to the most common questions about estimated taxes for C corporations:
Do C Corps Have to Pay Quarterly Taxes?
If your business owes more than $500 in quarterly taxes, you must submit quarterly payments towards its estimated taxes.
What Happens if You Overpay Your C Corp Estimated Tax?
If your business overpays estimated tax by a substantial margin, you can apply for a refund if the overpayment meets these criteria:
- Total overpayment of $500 or more
- Overpayment totals 10% or more of the expected income tax liability
If your business qualifies, you need to submit Form 4466 Corporate Application for Quick Refund of Overpayment of Estimated Tax.
Additionally, you can also receive a tax refund at the end of the tax year for any overpaid taxes. So, if you end up paying more than you should’ve, the IRS will issue you a refund when you file your tax return.
What Happens if You Miss a Quarterly Estimated Tax Payment?
If you owe over $500 in taxes, then the IRS will send a penalty letter and charge interest until the penalty is paid in full.
Penalties total 5% of your late taxes, and it will increase with each month past the due date.
Always pay your estimated taxes on time to avoid running into penalties, fines, or worse..
Can I Pay All My Estimated Taxes at Once?
No, you can’t. The government requires businesses to pay as they go. So you cannot prepay the whole year or even a quarter upfront. Estimated taxes must be paid each quarter.
Contact Tax Experts to Ensure You File and Pay Correctly
While paying your estimated taxes is relatively straightforward, it can be very time-consuming, especially for small businesses and startups. If you need help estimating or handling any of your financials, we can help.
Tax Hack can assist you with all of your business accounting tasks. Our experienced team of tax pros can provide comprehensive CFO services, simple tax preparation, and everything in between.
Get started today with a one-on-one strategy session with a Tax Hack pro to see how much you can save.