Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Estimated tax payments and you

estimated tax payments, taxShould you be making estimated tax payments?

Estimated tax payments are made to pay tax on income that is not subject to withholding, such as earnings from self-employment, interest, dividends, rents and alimony. Basically, you’re paying 25% of your total estimated annual tax due (required annual payment) four times a year:

  • April 15
  • June 15
  • September 15
  • January 15

The required annual tax payment for most individual taxpayers is the lower of 90% of the tax shown on the current year’s return or 100% of the tax shown on the return for the previous year (110% if your prior adjusted gross income is over $150,000)

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Underpayment penalty and rising interest rates

If you don’t make estimated tax payments when required, you will be charged an underpayment penalty. Because the underpayment penalty is calculated using the current IRS interest rate on overdue tax, today’s IRS interest rate of 6% (highest rate since 2008) will cause you to owe more than any time in the recent past.

The underpayment penalty calculation is made on Form 2210 and filed with your personal tax return. Worksheets available in IRS Publication 505 can help you understand if you should be making estimated tax payments.

There are situations where the underpayment penalty may not apply to you:

  • If the total tax shown on your return is less than $1,000 after subtracting withholding tax paid.
  • If you were a U.S. citizen or resident for the entire previous year, and you had no tax liability for that year.

Talk to your CPA

You know what your 2018 tax bill came to, but you probably don’t quite know what you may owe for 2019. Your CPA can help you project your 2019 tax bill based on your current and future projected income. So, be sure to reach out to Henry+Horne tax advisor for help.

Melinda Nelson, CPA

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