Estimated Taxes 2018

Estimated Taxes

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Estimated Taxes

The federal income tax is a pay-as-you-go tax. You must

pay the tax as you earn or receive income during the

year. There are two ways to pay as you go, either by employer

withholding or estimated tax payments.

Employer withholding. If you are an employee, your

employer generally withholds income tax from your

pay. In addition, tax may be withheld from certain other

income such as pensions, bonuses, commissions, and

gambling winnings. If all of your income will be subject

to income tax withholding, you probably do not need to

pay estimated tax. Events during the year may change

your marital status or exemptions, adjustments, deductions,

or credits you expect to claim on your tax return.

When this happens, you should complete a new Form

W-4, Employee’s Withholding Allowance Certificate, so that

the appropriate amount of tax is withheld.

Estimated tax. Estimated tax is the method used to pay

tax on income that is not subject to withholding. This

includes income from self-employment, interest, dividends,

alimony, rents, gains from the sale of assets, prizes

and awards. You also may have to pay estimated tax if

the amount of income tax being withheld from your salary,

pension, or other income is not enough.

Estimated tax is used to pay not only income tax, but selfemployment

tax and alternative minimum tax as well. If

you do not pay enough by the due date of each quarterly

payment period you may be charged a penalty even if

you are due a refund when you file your tax return.

Who Must Pay Estimated Tax

If you are filing as a sole proprietor, partner, S corporation

shareholder, and/or a self-employed individual,

you generally have to make estimated tax payments if



You had no tax liability for the prior year if your total

tax was zero or you did not have to file an income tax


When to Pay Estimated Taxes

For estimated tax purposes, the year is divided into fourpayment periods. Each period has a specific payment

due date. If you do not pay enough tax by the due dateof each of the payment periods, you may be charged a

penalty even if you are due a refund when you file your

income tax return.

2018 Estimated Payment Dates for Individuals

Installment Tax Period Covered Due DateFirst January 1 to March 31, 2018 April 17, 2018

Second April 1 to May 31, 2018 June 15, 2018Third June 1 to August 31, 2018 September 17, 2018

Fourth September 1 to December 31, 2018 January 15, 2019* Underpayment penalty for fourth installment does not apply if the 2018 return is filed and balance paid by January 31, 2019.

Note: It may be advantageous to pay the fourth period installment of

estimated taxes for state by December 31, 2018, in order to deduct the

amount as an itemized deduction for 2018.

You can use Form 1040-ES, Estimated Tax for Individuals,

to file your quarterly estimated tax payments. Or, you

can make all of your federal tax payments including federal

tax deposits, installment agreement, and estimated

tax payments using the Electronic Federal Tax Payment

System (EFTPS). If it is easier to pay your estimated taxes

weekly, bi-weekly, monthly, etc. you can, as long as

you have paid enough in by the end of the quarter. Using

EFTPS, you can access a history of your payments,

so you know how much and when you made your estimated

tax payments. See, for more


Underpayment of Estimated Tax

If you did not pay enough tax throughout the year, either

through withholding or by making estimated tax

payments, you may have to pay a penalty for underpayment

of estimated tax. Generally, most taxpayers will

you expect to owe tax of $1,000 or more when you file

your return.

If you owed additional tax for the prior year (did not

have enough withheld by employer), you may have to

pay estimated tax for the current year.

General rule. In most cases, you must pay estimated

tax for the current year if both of the following apply.

1) You expect to owe at least $1,000 in tax for the current

year, after subtracting withholding and refundable

credits, and

2) You expect your withholding and refundable credits

to be less than the smaller of:

a) 90% of the tax to be shown on your current year tax

return, or

b) 100% of the tax shown on your previous year’s tax

return, if your previous year’s return covered all 12


Note: The percentage amounts may be different if you

are a farmer, fisherman, or higher-income taxpayer.

Who Does Not Have to Pay Estimated Tax

If you receive salaries and wages, you can avoid having

to pay estimated tax by asking your employer to withhold

more tax from your earnings. To do this, file a new

Form W-4 with your employer. There is a special line on

Form W-4 for you to enter the additional amount you

want your employer to withhold.

You do not have to pay estimated tax for the current year

if you meet all three of the following conditions.

• You had no tax liability for the prior year,

• You were a U.S. citizen or resident for the whole year,


• Your prior tax year covered a 12 month period.

avoid this penalty if they owe less than $1,000 in tax after

subtracting their withholdings and credits, or if they

paid at least 90% of the tax for the current year, or 100%

of the tax shown on the return for the prior year, whichever

is smaller.

The penalty may also be waived if:

1) The failure to make estimated payments was caused

by a casualty, disaster, or other unusual circumstance

and it would be inequitable to impose the penalty, or

2) You retired (after reaching age 62) or became disabled

during the tax year for which estimated payments

were required to be made or in the preceding

tax year, and the underpayment was due to reasonable

cause and not willful neglect.

Additional Medicare Tax and Net Investment Income Tax—

Threshold Amounts

Filing Status Threshold Amount

Single, Head of

Filing Status

Threshold Amount

Single, Head of Household,

Qualifying Widow(er)


Married Filing Jointly


Married Filing Separately


Additional Medicare Tax. A 0.9% Additional Medicare

Tax applies to Medicare wages, Railroad Retirement Tax

Act compensation, and self-employment income over

the threshold amount based on your filing status. You

may need to include this amount when figuring your

estimated tax.

Net Investment Income Tax. You may be subject to the

Net Investment Income Tax (NIIT). NIIT is a 3.8% tax

on the lesser of net investment income or the excess of

your modified adjusted gross income (MAGI) over the

threshold amount for your filing status. NIIT may need

to be included when figuring your estimated tax.

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There are many events that occur during the year that can affect

your tax situation. Preparation of your tax return involves summarizing

transactions and events that occurred during the prior

year. In most situations, treatment is firmly established at the

time the transaction occurs. However, negative tax effects can

be avoided by proper planning. Please contact us in advance

if you have questions about the tax effects of a transaction or

event, including the following:

• Pension or IRA distributions.

• Significant change in income or


• Job change.

• Marriage.

• Attainment of age 59½ or 70½.

• Sale or purchase of a business.

• Sale or purchase of a residence

or other real estate.

• Retirement.

• Notice from IRS or other

revenue department.

• Divorce or separation.

• Self-employment.

• Charitable contributions

of property in excess of