Taxpayers who pay estimated taxes have the next due date on June 15, 2019, but because that is a Saturday, the date is shifted to Monday, June 17 as the deadline for the second estimated tax payment for 2019.
Examples of those who often need to pay quarterly estimated taxes are self-employed individuals, retirees, investors, and some individuals involved in the sharing economy, among others.
The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. Most TCJA changes took effect in 2018. As a result, many taxpayers ended up receiving 2018 refunds that were larger or smaller than expected, while others unexpectedly owed additional tax when they filed earlier this year. Because of this, taxpayers should consider whether they need to adjust the amount of tax they pay each quarter through estimated tax payments.
Form 1040-ES, available on IRS.gov, is designed to help taxpayers figure these payments simply and accurately. The estimated tax package includes a quick rundown of key tax changes, income tax rate schedules for 2019 and a useful worksheet for figuring the right amount to pay.
A companion publication, Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, which can help taxpayers determine whether they should pay estimated tax. This includes those who have dividend or capital gain income, owe alternative minimum tax or have other special situations.
Who needs to pay quarterly?
Most often, self-employed people, including some individuals involved in the sharing economy, need to pay quarterly installments of estimated tax. Similarly, investors, retirees and others – a substantial portion of whose income is not subject to withholding – often need to make these payments as well. Other income generally not subject to withholding includes interest, dividends, capital gains, rental income and alimony in some cases.
Because the U.S. tax system operates on a pay-as-you-go basis, taxpayers are required by law to pay most of their tax liability during the year. For 2019, this means that an estimated tax penalty will normally apply to any party that pays too little tax, usually less than 90 percent, during the year through withholding, estimated tax payments or a combination of the two.
Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees, and those who receive income unevenly during the year. In addition, there’s an exception to the penalty for those who base their payments of estimated tax on last year’s tax. Generally, taxpayers won’t have an estimated tax penalty if they make payments equal to the lesser of 90 percent of the tax to be shown on their 2019 return or 100 percent of the tax shown on their 2018 return (110 percent if their income was more than $150,000). See Form 2210 and its instructions for more information.
Employees have a choice
Many employees who also receive income from other sources may be able to forgo making estimated tax payments and instead increase the amount of income tax withheld from their pay. One way they can do this is by first completing the Deductions, Adjustments, and Additional Income Worksheet in the W-4 instructions and then claiming fewer withholding allowances on the Form W-4 they give to their employer. Alternatively, they can ask their employer to withhold an additional flat-dollar amount each pay period on their Form W-4.
Perform a Paycheck Checkup
With many key tax changes now in their second year, the IRS urges all employees, including those with other sources of income, to perform a Paycheck Checkup now. Doing so now will help avoid an unexpected year-end tax bill and possibly a penalty. The easiest way to do this is to use the Withholding Calculator available on IRS.gov.
To use the Withholding Calculator most effectively, users should have a copy of last year’s tax return and recent paystub. After filling out the Withholding Calculator, the tool will recommend the number of allowances the employee should claim on their Form W-4.
Though primarily designed for employees who receive wages, the Withholding Calculator can also be helpful to some recipients of pension and annuity income.
If the Withholding Calculator suggests a change, the employee should fill out a new Form W-4 and submit it to their employer as soon as possible. Similarly, recipients of pensions and annuities can make a change by filling out Form W-4P and giving it to their payer.
Employees who expect to receive long term capital gains or qualified dividends, or employees who owe self-employment tax, alternative minimum tax, or tax on unearned income of minors should use the instructions in Publication 505 to check whether they should change their withholding or pay estimated tax.
How and when to pay
The IRS provides two free electronic payment options, where taxpayers can schedule their estimated and other federal tax payments up to 30 days in advance, with Direct Pay (bank account) or up to 365 days in advance, with the Electronic Federal Tax Payment System (EFTPS). They can also visit IRS.gov/payments to explore options to pay online, by phone or with their mobile device and the IRS2go app. Taxpayers paying by check or money order must make it payable to the “United States Treasury.”
Taxpayers can pay their 2019 estimated tax payments any time before the end of the tax year. Most taxpayers make estimated tax payments in equal amounts by the four established due dates. The three remaining due dates for tax year 2019 estimated taxes are June 17, September 16, and the final payment is due Jan. 15, 2020.
Taxpayers who are due a refund on their 2018 federal income tax return may be able to reduce or even skip one or more of these payments by choosing to apply their 2018 refund to their 2019 estimated tax. See Form 1040 and its instructions for more information.
Taxpayers in presidentially-declared disaster areas may have more time to make these payments without penalty. Visit the Tax Relief in Disaster Situations page for details.