Five Tax Tips About Payments for Estimated Payments
Ines Zemelman, EAApr-05-2017
Most US employees have their income tax payments simply withheld by their employer from their paychecks. But, there are situations where a taxpayer must make those tax payments on their own – perhaps their employer doesn’t withhold taxes, they do not ask their employer to withhold enough tax, or they are self-employed. In these situations, they will usually need to submit their tax payments on their own.
For people unfamiliar with the estimated tax payment process, the following are five things to know.
Should I Be Paying Estimated Tax?
For estimated payments, there are several formulas to figure out your tax due.
- The simplest is to take 110% of the previous year's taxes is the default formula for calculation of estimated taxes. For example, if your tax due for 2013 year was $1,800 we would prepare estimated vouchers payable towards 2014 for $2,000 (4 quarterly payments of 500) - which represents roughly 110% of your tax due for 2013.
- If your situation has changed dramatically (and you are now rolling in dough!) - we can calculate your estimated tax due with a tax projection.
This applies to all U.S. taxpayers and is not dependent on expat status.
As with all things related to the IRS, there’s a form for that. The IRS Estimated Tax for Individuals Form, 1040-ES, is how estimated tax is calculated and paid. The total income expected during the year, tax credits, and tax deductions go into the calculation.
As a part of tax preparation, we prepared estimated payment vouchers for you if you have a tax liability in the current year.
Estimated Tax Payment Requirements
Unless you’re a farmer or fisherman, most people they should make estimated tax payments if they believe they will owe $1,000 or more in taxes with their tax return.
Payment Due Dates
Most importantly - when do you owe? Most taxpayers who pay estimated taxes submit them quarterly. The usual due dates are April 15th, June 15th, September 15th, and January 15th of the following tax year.
Paying Estimated Tax
For paying the old-fashioned way, Form 1040-ES includes a payment voucher to include with a check mailed to the IRS.
No one likes to send snail mail, so there are easier ways to pay, too. The IRS uses Direct Pay to allow taxpayers to securely pay from their bank account without fees.
The Direct Pay option does not work for everyone. If you are unable to get through the rigorous verification process of this system then you can choose among the broad range of other electronic payment options
If you are making estimated payments, please note you can only do this until January 15 of the year for which you make estimated payments.
- If you have unpaid vouchers after January 15 and want to pay the IRS for your upcoming tax return, please select Form 1040 as payment option even if you are paying the amounts shown as the estimated payment. The most important goal to achieve is that payments go towards the correct year.
Changing Withholding and Estimated Tax Payments
Anticipating? Taxpayers should look at their withholding and estimated taxes any time they have a major change in their life – birth, death, marriage, etc. If changes are required, the estimated taxes paid should be changed, or in the case of employees, they should give a new IRS Form W-4 to their employer with updated withholding information. The IRS has a tool to assist in calculating withholding.