If withholding doesn’t cover all of your tax obligations you may have to pay estimated taxes throughout the year.
You don’t need to worry about paying estimated taxes if all your income comes from being an employee. Your employer is required to withhold taxes from every paycheck.
You only need to pay estimated taxes if you have earnings that are not subject to withholding. This income can include
- self-employment
- interest
- dividends
- alimony
- rent
- gains from the sale of assets
- prizes and awards
Estimated taxes include both income taxes and self-employment tax, as well as other taxes.
Who has to pay estimated taxes?
You must pay estimated taxes if both of the following conditions apply:
- You expect to owe at least $1,000 in tax for the current year (after subtracting your withholding and refundable credits)
- You expect your withholding and refundable credits to be less than the smaller of:
- 90% of the tax to be shown on your 2018 tax return
- 100% of the tax shown on your 2017 tax return
If you meet both of the conditions above, and you also are an employee somewhere, you may be able to avoid the extra hassle of paying estimated taxes by asking your employer to increase the withholding on your pay. You can do this by filling out a new W-4 [Employee’s Withholding Allowance Certificate].
Also note that there are special rules for farmers, fishermen, and higher income taxpayers. So if you fall into one of these groups, it’s best to consult Publication 505 directly.
When is estimated tax due?
You can either choose to pay all of your estimated tax for the 2018 tax year by April 15, 2019 or in four equal installments due on the following dates:
- April 15, 2019
- June 17, 2019
- September 16, 2019
- January 15, 2020
How to figure estimated taxes
In order to figure out how much estimated tax to pay, you have to estimate your total AGI, taxable income, taxes, deductions, and credits for the whole tax year. Essentially you have to do your taxes early in order to figure out how much to pay in each installment.
Self-employed individuals, sole proprietors, partners, and S corporation shareholders should fill out Form 1040-ES [Estimated Tax for Individuals] to calculate and pay their estimated tax.
How to pay
In additional to the traditional method of paying by check, the IRS also offers several convenient ways to pay online. You can pay with either a direct transfer from your bank account or a credit or debit card. To see all of your online payment options visit this IRS page.
You can make payments through the Electronic Federal Tax Payment System (EFTPS), a free service provided by the Department of the Treasury that allows you to pay any tax due to the IRS.
Penalties
You could be charged a penalty if you don’t pay enough tax through withholding or estimated tax, or if you don’t pay enough estimated tax by the due date of each payment period. The IRS will impose a penalty on each underpayment for the number of days it remains unpaid.
States
And don’t forget about state taxes too! If your resident state or the state you’re performing work in has an income tax, you probably have to pay estimated taxes to the state as well. Visit your state tax authority’s website for the necessary forms and procedure.
Unfortunately, RapidTax can’t help you file your estimated taxes, but we can certainly help you file your normal return!
