Estimated Tax Payments Are Confusing; Here Is an Easy Way to Understand Them

Tax season is one that is dreaded by so many people across the United States. Whether you hate the process of filing your taxes, or simply just don’t understand the tax filing process, it can be a confusing and frustrating time for people. 

One common question we receive is how to file estimated tax payments. Estimated tax is how we pay taxes on income that is not subject to withholding. Estimated tax includes income from things such as self-employment, interest, dividends, rent, etc. It can also include income from sales, prizes, or awards you might be given. Essentially it is income that falls outside W-9 income.

Sometimes estimated tax is required to be paid when your income tax is not enough, which comes from salary, pension, or other forms of income. 

Who needs to file estimated taxes?  

Estimated taxes are paid by both individuals and business owners. They are filed quarterly in order to keep the process smooth for each party involved. In 2019, the first quarterly payment is due April 17. You need to be aware of the quarterly dates because if you fail to file by the due date, you will face penalties.

If you are a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, it is the general rule to make an estimated tax payment if you owe a tax of $1,000 or more! If you are a corporation, you have to make estimated tax payments if you owe a tax of $500 or more.

It’s also important to note that if you had a tax liability last year, you may be liable to pay an estimated tax for this year. But if you still receive a salary, ask your employer to withhold more tax from your earnings, and you may be able to avoid having to pay the estimated tax. 

Who doesn’t have to pay estimated tax?  

You do not have to pay estimated tax if you meet the following requirements: 

• 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

You can also avoid having to pay estimated tax if you ask your employer to withhold more taxes from your earnings. You must file a new W-4 in order to do this. 

What are the estimated tax due dates for 2019?

The tax year is divided into four quarters, aka four payable periods. Each period within the quarter has a specific date that a payment is due, but we would advise planning to pay a little bit ahead of time in case you get stuck in a bind. 

The 2019 tax dates are: 

• April 17

• June 15

• September 17

• January 15, 2020

Have questions on how to file your estimated tax payments? Contact us for more info!