Paying Taxes Four Times a Year

Explain why tax on NIL pay is sent in during the year, not once in April.
Run the reserve habit: a set share of every payment, moved the day it lands.
Pay a quarterly estimate from the reserve and nothing else.

When no one takes tax out, the government asks for it during the year, in four payments. Miss them, and there can be a penalty on top of the tax.

The habit that makes this painless: move a set share of every payment into the tax reserve the day it lands. The four payments come out of that account. Nothing else does.

Your plan sets the reserve share at 25%. A Ⓛ4,000.00 payment lands. How much moves to the tax reserve?

Work it out, then check

Ⓛ1,000.00. The share in your own plan is set with a tax professional. 25% is this example’s number, not a rule.

A quarterly payment is due. The tax reserve holds Ⓛ3,200.00 and the estimate is Ⓛ2,900.00. What happens?

Pick your answer first, then open it.

Pay the Ⓛ2,900.00 from the reserve. Ⓛ300.00 stays there for the next one.

✓ Right. The reserve did its job. It was there before the bill was.

Skip it and pay it all in April.

Skipping a due payment can add a penalty. The money is already sitting in the reserve; send it.

Pay it from spending and leave the reserve alone.

Spending is your monthly pay. Paying tax from it means a short month for no reason, while the reserve sits full.

One year, four payments, one reserve

Payment	Reserve before	Sent	Reserve after
First	Ⓛ3,100.00	Ⓛ2,900.00	Ⓛ200.00
Second	Ⓛ4,800.00	Ⓛ3,500.00	Ⓛ1,300.00
Third	Ⓛ4,100.00	Ⓛ3,000.00	Ⓛ1,100.00
Fourth	Ⓛ3,900.00	Ⓛ3,800.00	Ⓛ100.00

The reserve never hits zero, because the share moved in before each bill came.

This week

Ask a tax professional what reserve share fits your income and your state. Write that share into the name of the tax reserve account. Then set up the transfer.

Next in NIL Money, Planned: Records a Tax Pro Can Use →