Who Must Pay Estimated Taxes

Do I have to pay estimated taxes? This is a normal question to ask, but it is important especially if you’ve made any changes in your profession.

The Estimated Tax Rules Apply to:

• U.S. citizens and resident aliens;
• Residents of Puerto Rico, the U.S. Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa; and
• Nonresident aliens

General Rules

In most cases, you must pay estimated tax for 2018 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2018, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:

• 90% of the tax to be shown on your 2018 tax return, or
• 100% of the tax shown on your 2017 tax return (your 2017 tax return must cover all 12 months).

Note. These percentages may be different if you are a farmer, fisherman, or higher income taxpayer, so keep reading for special rules geared towards these professions.

Exception

You don’t have to pay estimated taxes for 2018 if you were a U.S. citizen or resident alien for all of 2017 and you had no tax liability for the full 12-month 2017 tax year. You had no tax liability for 2017 if your total tax was zero or you didn’t have to file an income tax return.

Special Rules

There are special rules for farmers, fishermen, certain household employers, and certain higher income taxpayers.

Farmers and fishermen

If at least two-thirds of your gross income for 2017 or 2018 is from farming or fishing, substitute 66.667% for 90% in (2a) under General Rule.

Household employers

When estimating the tax on your 2018 tax return, include your household employment taxes if either of the following applies.

• You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income.
• You would be required to make estimated tax payments to avoid a penalty even if you didn’t include household employment taxes when figuring your estimated tax.

Higher income taxpayers

If your adjusted gross income (AGI) for 2017 was more than $150,000 ($75,000 if your filing status for 2018 is married filing separately), substitute 110% for 100% in (2b) under General Rules, earlier. This rule doesn’t apply to farmers or fishermen.

Increase Your Withholding

If you also receive salaries and wages, you may be able to avoid having to make estimated tax payments on your other income by asking your employer to take more tax out of your earnings. To do this, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer.

A general guideline is that you don’t have to pay estimated taxes for the current year if you meet all three of the following conditions.

• You had no tax liability for the prior year
• You were a U.S. citizen or resident for the whole year
• Your prior tax year covered a 12-month period

Generally, if you receive a pension or annuity, you can meet with your enrolled agent to start or change your withholding from these payments. They can also assist you with your estimated taxes.

Fourth Quarter Estimate Due:

September 1 – December 31, 2018 | January 15, 2019

Check out What Happens if You Don’t Pay Estimated Taxes.

 

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting as well as an Enrolled Agent and a Certified Tax Resolution Specialist.
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Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.

The book is available in paperback and ebook on https://Amazon.com
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For more on SFS Tax & Accounting Services, visit https://sfstaxacct.com/
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