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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
Estimated
Taxes
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
return.
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 www.eftps.gov/eftps, for more
information.
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
months.
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,
and
• 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)
$200,000
Married Filing Jointly
$250,000
Married Filing Separately
$125,000
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.
Contact Us
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
deductions.
• 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
$5,000.
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