Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax
payments. Estimated tax is utilized to pay income tax, self-employment tax, and alternative minimum tax.
Estimated tax payments become necessary if the amount of income tax withheld from your salary or pension is not
enough, or you receive income such as self-employment income, interest, dividends, alimony capital gains, prizes
and awards.
Frequently Asked Questions
1. I’m trying to make a wire transfer of the balance due payment and the bank asks for the 'tax month' and 'short name' to be entered in the worksheet to be filed. Where can I find those?
Tax month should be 12 (for December) for payment on an annual return for a calendar year taxpayer. The short name is likely referring to the taxpayer name control so it would be the first four letters of the client's last name.
2. What is Self-Employment Tax?
Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals working for themselves. For further details on Self-Employment Tax see here .
3. What is Alternative Minimum Tax?
Alternative Minimum Tax (AMT) applies to taxpayers with high economic income by setting a limit on the amount of tax benefits these taxpayers can use. For further details on AMT please see here.
4. Are there any penalties associated with estimated tax payments?
Yes. You may charged a penalty under either of the following circumstances:
- You did not pay enough tax through withholding and estimated tax payments.
- You made estimated tax payments late (Note: a penalty can be charged even if you are due a refund.)
5. Who must pay estimated tax?
Individuals, including sole proprietors, partners, and S corporation shareholders generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
If your tax was more than zero in the prior year, you may need to pay estimated tax in the current year. For further details, please see the following worksheets:
6. Who does not have to pay estimated tax?
Employees receiving salary or wages can avoid estimated tax payments by asking their employer to withhold more tax from their earnings. This can be done by filing 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 are not required 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 (i.e. your tax was zero or you didn’t have to file an income tax return.)
- You were a U.S. citizen or resident for the entire year.
- Your prior tax year covered a 12-month period.
For details on how to calculate your estimated tax, please see here.
7. Generally, what worksheet is used by Individuals to figure estimated tax?
Individuals, including sole proprietors, partners, and S corporation shareholders, generally use Form 1040-ES, to figure estimated tax. For further details, please see here.
8. Are there any figures necessary before calculating the current year’s estimated tax?
Yes, you will need to figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year in order to calculate Estimated taxes.
9. Is it helpful to review my prior year’s federal income tax return?
Yes. When using the worksheet in Form 1040-ES to figure your estimated tax, (in addition to other figures) you will need to estimate the amount of income you expect to earn for the year. As a guide, it may be helpful to start with your income, deductions, and credits found on your prior year’s federal income tax return.
If you estimate your earnings too high or too low, you should complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. In order to avoid penalties, you must estimate your income as accurately as possible. Adjustments may be necessary due to changes in your current situation or recent changes in the tax law.
10. Generally; what worksheet is used by Corporations to figure estimated tax?
Corporations generally use Form 1120-W to figure estimated tax. For additional detail, please see here.
11. When should I pay estimated taxes in 2017?
For estimated tax purposes, the year is divided into four payment periods as indicated below:
For the period:
- January 1* - March 31; payment is due by April 18
- April 1 - May 31; payment is due on June 15
- June 1 - August 31; payment is due on September 15
- September - December 31; payment is due on January 16, next year**
Notes:
* If your tax year does not begin on January 1, see Fiscal year taxpayers.
** January payment - If you file your 2017 Form 1040 or Form 1040A by January 31, 2018, and pay the rest of the tax you owe, you do not need to make the payment due on January 16, 2018. For further detail please see here.
12. How to pay estimated taxes?
You have the ability to pay online, by phone, or by mail for each estimated tax pay period. To pay online, visit online payments. To pay by phone or mail, refer to the section of Form 1040-ES titled "How to Pay Estimated Tax." For additional information, please see here.
Although mandatory for corporations, the easiest way to make federal tax payments for individuals is the Electronic Federal Tax Payment System (EFTPS). EFTPS can be used to make all federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments.
In addition, estimated taxes can be paid weekly, bi-weekly, monthly, etc. as long as you`ve paid enough by the end of the quarter. EFTPS allows you to access your payment history, which makes it easier to manage your payments.
13. Is there a penalty for underpayment of estimated tax?
Yes. You may have to pay a penalty for underpayment of estimated tax if you did not pay enough tax throughout the year through either withholding or by making estimated tax payments.
14. How can I avoid the penalty for underpayment of estimated tax?
Generally, most taxpayers will avoid this penalty in one of the following circumstances:
- The taxpayer owes less than $1,000 in tax after subtracting their withholdings and credits.
- The taxpayer paid at least 90% of the tax for the current year, or 100% of the tax shown on the prior year return (whichever is smaller).
Note: There are special rules for farmers and fishermen.
However, if your income is received unevenly during the year, you may be able to avoid or lower the penalty by annualizing your income and making unequal payments.
15. How can I see if I owe a penalty for underpaying my estimated tax?
Individuals can use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Corporations can use Form 2220, Underpayment of Estimated Tax by Corporations.
16. Is it possible for the penalty to be waived?
Yes. The penalty may be waived if:
- Failing to make estimated payments was caused by an unusual circumstance (i.e. a disaster or casualty) and it would be inequitable to impose the penalty, or
- 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.
