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How to Calculate and Make Estimated Tax Payments

Business Finance Business Planning Quarterly Tax Payments Self-Employment Tax Planning

Updated for tax year 2017. Some information will change once the IRS finalizes the changes made by the Tax Cuts and Jobs Act.

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If you’re like most taxpayers, you receive salary and wages from your employer and never have to worry about making estimated tax payments.

Even if you receive additional income, such as interest and dividends, stock gains, or freelance income, the income tax withheld from wages usually covers your total income tax.

If you have significant income other than wages, all you need to do is increase the amount withheld from your pay so your taxes are covered.

If you have little or no income tax withheld from wages and earn significant other income, however, you may need to make quarterly estimated tax payments to the Internal Revenue Service (IRS).

Otherwise, you could owe interest and penalties when you file your tax return.

If you have taxable income as a freelancer, small business owner, entrepreneur, or investor, you should calculate your estimated tax and determine if you need to make quarterly payments.

You may also need to make estimated tax payments if you have gambling income, unemployment benefits, or taxable retirement plan withdrawals.

Don’t worry about estimated tax payments if you expect to owe only a small amount of tax. You should only pay quarterly estimated tax payments if you anticipate a tax bill of at least $1,000 when you file.

Even if you owe more than $1,000 when you file, you won’t pay a penalty if your total income tax withholding and timely estimated tax payments equal at least 90 percent of the tax shown on this year’s return, or 100 percent of the tax shown on your previous year’s tax return.

This is called the “safe harbor amount.”

The safe harbor provision is especially helpful if your income fluctuates significantly or if you won’t know for sure how much profit you’ll make for the year until you complete year-end calculations.

If you think you may need to make estimated tax payments, use TaxAct to calculate those amounts. TaxAct can help you estimate your payment based on the worksheet calculation or your tax liability for the previous year.

Note: Farmers and fishermen get special consideration for estimated tax payments. You only have to pay 66.6 percent of the current year’s estimated tax liability if two-thirds of your gross income is from farming or fishing.

If you have zero tax liability for the previous year and you were a U.S. Citizen or resident alien all year, you don’t have to make estimated payments for this year.

However, if you have significant income for this year, you may choose to make quarterly payments anyway so you’re not faced with a huge bill at tax time.

Filing dates for federal quarterly estimated tax payments.

Estimated tax payments are due on a quarterly basis, however, the due dates are not perfectly spaced throughout the year.

The quarterly estimated tax payments due dates for 2018 are as follows:

Payment Period Due Date
January 1 – March 31 April 17
April 1 – May 31 June 15
June 1 – August 31 September 17
September 1 – December 31 January 15, 2019

When a due date falls on a weekend or holiday, your quarterly payment is due the following business day.

How to make quarterly estimated tax payments.

There are several ways to make estimated tax payments. If you have an overpayment on one year’s tax return you can use it to get a head start on estimated tax payments for the next year.

It’s as simple as applying all or a portion of your over-payment to the first quarter of your next year’s tax liability instead of receiving it as a refund.

If you figure your quarterly payments with TaxAct and print the quarterly payment vouchers, just mail the voucher and your check or money order to the IRS by each due date.

Another easy way to make quarterly estimated tax payments is through Electronic Funds Withdraw. With this method, you have quarterly payments deducted from your bank account automatically. You can set this up in TaxAct.

The IRS also accepts credit and debit card payments via phone and on its website at irs.gov. Be aware that you’ll pay an additional convenience fee to your bank to use a debit or credit card.

Perhaps the easiest way to make quarterly estimated tax payments is through the Electronic Federal Tax Payment System (EFTPS). This is a free, online payment system. Be sure to plan ahead to use EFTPS – you can’t set up or use it to pay your tax on the last day.

Don’t forget to make state estimated tax payments, if necessary.

Strategies for making estimated tax payments easier

The biggest hurdles to making estimated tax payments are remembering to make the payments and having the money on hand to do so.

As you receive income throughout the year, try to put aside an amount for taxes. If you create a separate account for taxes you can move money into it once a week or every month so you know the money’s there when you need it.

If you receive a large chunk of money; for example, if you sell a large capital asset for a gain, plan to put a portion of your gain in your tax reserve account, or make an extra payment to the IRS. That way you’ll know you’ve got your taxes covered.

On the other hand, if you make less money during the year or have more deductions than you expected, you can always decrease the amount you pay each quarter.

At least once a quarter, consider recalculating your estimated taxes for the year. That way you don’t have big surprises about your tax liability at year-end.

Mark the due dates for estimated tax payments on your calendar. If you’re someone who needs to make quarterly payments, these are some of the most important dates of the year to remember.

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