Corporations may need to pay federal income taxes throughout the year rather than waiting until they file their annual tax returns. These estimated payments help businesses stay current with their tax obligations, manage cash flow, and avoid potential underpayment penalties.

Although Form 1120-W, Estimated Tax for Corporations, was previously used to calculate corporate estimated tax installments, the IRS discontinued its use for this purpose beginning with tax year 2023. Businesses should now follow current IRS guidance to calculate and pay their estimated taxes.

What Was Form 1120-W?

Form 1120-W was a worksheet designed to help corporations estimate their annual federal tax liability and determine the amount of their required installment payments.

It was different from Form 1120 and Form 1120-S, which are annual federal income tax returns for C corporations and S corporations, respectively.

Form 1120-W is now primarily a historical reference. Corporations should not use its former line-by-line instructions as the current method for calculating estimated tax payments.

Which Corporations Must Make Estimated Tax Payments?

Generally, a corporation must make estimated tax payments if it expects its federal tax liability, after applicable credits, to be $500 or more for the tax year. Special rules and exceptions may apply.

C Corporations

C corporations generally pay federal income tax on their taxable income. The regular federal corporate income tax rate is 21%, although deductions, credits, and other tax provisions can affect the final amount owed.

Corporations should estimate their annual tax liability and determine whether quarterly installments are required.

S Corporations

S corporations generally pass income, deductions, and credits through to their shareholders. Shareholders typically report these tax items on their individual income tax returns.

However, an S corporation may owe certain corporate-level taxes and may need to make estimated payments for those liabilities. Shareholders may also need to make individual estimated tax payments based on their share of business income and other taxable income.

How to Calculate Corporate Estimated Tax Payments

Even though Form 1120-W is no longer used, corporations still need to estimate their annual tax liability and calculate the required installments.

Step 1: Estimate Taxable Income

Project the corporation's income for the tax year, taking into account expected revenue, deductible business expenses, depreciation, and other relevant tax adjustments.

Step 2: Calculate Estimated Tax Liability

Apply the appropriate federal tax rules to the projected taxable income. Include applicable credits and other taxes that affect the corporation's total tax liability.

Step 3: Determine the Required Installments

Corporate estimated tax is generally paid in four installments. Equal installments are common, but businesses with seasonal or uneven income may qualify to use the annualized income installment method or adjusted seasonal installment method.

Step 4: Review Payments Throughout the Year

Recalculate the estimated tax liability when business income or expenses change significantly. If the expected tax liability changes, the corporation may need to adjust its remaining installments.

Businesses should consult current IRS instructions and, when applicable, Form 2220 to evaluate underpayment penalty requirements.

When Are Corporate Estimated Tax Payments Due?

For a corporation using a calendar tax year, the standard federal estimated tax payment dates are:

Installment / Due date

First / April 15

Second / June 15

Third / September 15

Fourth / December 15