Making Estimated Tax Payments

Posted on Monday, August 06, 2018

Estimated tax payments are required if your tax liability will be $1,000 or more than amounts withheld from your income. Typically, individuals who receive significant income from sources that don't withhold taxes, such as dividends, interest, capital gains, self-employment income, rent, alimony, partnership interests, and S corporation interests, must make estimated tax payments.

Estimated tax payments are generally made in four equal installments on April 15, June 15, September 15, and January 15. However, if you do not receive income evenly throughout the year, you can make estimated tax payments based on actual income for the period. If you underpay any installment, interest will be assessed until you catch up.

To avoid interest charges, you must pay sufficient estimated tax payments to satisfy one of the safe harbor rules. Ordinarily, you must pay either 90% of what you will owe for the current year, or 100% of what you owed for last year. If your adjusted gross income is at least $150,000 (or $75,000 if you file as married and separate) you may have to pay 110% of last year's tax liability. Ask your accountant for guidance regarding these payments.

Individuals who earn a significant portion of their gross income from fishing or farming are subject to special rules.

What should you do if you find out you've underpaid an installment? If you are subject to withholding, you can increase your withholding for the rest of the year to help cover these underpayments. Amounts withheld from wages are assumed to be withheld evenly throughout the year, no matter when the amounts are actually withheld.

Review your tax situation early in the year, preferably while you are preparing your prior year's tax return, so you can make proper estimated tax payments.

Posted in Tax Topics For Individuals

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.