Estimated tax is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.). In addition, if you do not elect voluntary withholding, you should make estimated tax payments on other taxable income, such as unemployment compensation and the taxable part of your social security benefits.

 

If you are an employee, you usually will have taxes withheld from your pay from your employer. However, if you don’t have taxes withheld, or you don’t have enough tax withheld, you may need to make estimated tax payments. Or, if you are self-employed you normally will have to pay your taxes this way.

 

Here are five tips about making estimated tax payments:

  1. When the tax applies:
    • If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you should pay estimated taxes if you expect to owe at least $1,000 in tax for the tax year after subtracting your withholding and refundable credits.
    • If you are filing as a corporation, you generally will have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.
    • Special rules apply to farmers and fishermen.
  2. How to figure the tax:
    • Estimate the expected adjusted gross income, taxable income, you expect to receive for the year.
    • Also, make sure that you take into account any tax deductions and credits that you will be eligible to claim.
    • Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax.
    • Note: If you do not pay enough tax by the due date of 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.
  3. When to make payments:
    • For estimated tax purposes, the year is divided into quarterly payment periods:
      1st Quarter April 18th
      2nd Quarter June 15th
      3rd Quarter September 15th
      4th Quarter January 15th (next year)
  4. When to change tax payments or withholding:
    • Major life changes like the birth of a child can affect your taxes. When these changes happen, you may need to revise your estimated tax payments during the year.
    • If you are an employee, you may need to change the amount of tax withheld from your pay. If this is the case, give your employer a new Form W–4, Employee’s Withholding Allowance Certificate.
  5. How to pay estimated tax:
    • You can pay online, by phone or from your mobile device.
    • Paying by mail is another option. If you pay by mail, use the payment vouchers that come with Form 1040-ES.

 

Still confused . . . contact NGAS to help you with How to Estimate Your Tax Payments.

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