Q: How do I know if I have to file quarterly individual estimated tax payments?
A: You must make estimated tax payments for the current tax year if both of the following apply:
- You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- You expect your withholding and credits to be less than the smaller of:
- 90 percent of the tax to be shown on your current year's tax return, or
- 100 percent of the tax shown on your prior year's tax return. (Your prior year tax return must cover all 12 months.)
There are special rules for:
- Certain small-business taxpayers
- Certain taxpayers with higher adjusted gross income
- Farmers and commercial fishermen
- Estates and trusts
See IRS Pub 505 for more details.
Q: How do I make estimated tax payments?
A: You should complete the work sheet that comes with IRS Form 1040-ES to determine the amount of quarterly payments required. Form 1040-ES comes with four vouchers that you can use to make your payments. The first payment is due on April 15 of the current tax year. Subsequent payments are due June 15, September 15 and the following January 15. In lieu of using the vouchers, you can either schedule electronic payments using the IRS EFTPS system (www.eftps.com) or you can schedule the electronic payments by adding Form 1040-ES to your electronically filed tax return.
Q: Do estimated tax payments also include taxes other than income taxes?
A: Yes, your estimated tax payments must include an estimate for self-employment taxes as well as additional taxes due for the early withdrawal of IRA or pension benefits. There are also some other miscellaneous taxes you may have to estimate. See page 6 of the Form 1040-ES instructions.
Q: I expect to have a one-time large payment of taxable income in the fourth quarter. Do I have to make an estimated tax payment for just the fourth quarter?
A: You may have to make an estimated payment. In most cases, you must pay estimated tax for a tax year if both of the following apply:
- You expect to owe at least $1,000 in tax for the year, after subtracting your withholding and refundable credits.
- You expect your withholding and refundable credits to be less than the smaller of:
- 90 percent of the tax to be shown on your current year tax return.
- 100 percent of the tax shown on your prior year tax return. Your prior year tax return must cover all 12 months.
Please note that these percentages may be different if you are a farmer, fisherman or higher income taxpayer. You can find the special rules in IRS Pub 505 under the heading "Who Must Pay Estimated Tax." In lieu of making an estimated payment, you could ask your employer to start withhoding more taxes from your pay. The IRS consider all tax withholding to have been made equally throughout the year. Lastly, many individuals in your situation elect to keep their money invested and just pay the penalty when they get a bill from the IRS after they file.
Q: My employer is asking me to complete Form W-4 in order to determine my tax withholding. How do I figure out how many exemptions and allowances to claim on the W-4?
A: For many taxpayers the number of allowances to enter on the form will be the same as the number of exemptions claimed on your tax return. See Line 6d of your 1040 or 1040A. If you work more than one job or your spouse works or you itemize your deductions, you should use the work sheet that comes with the W-4 to calculate the number of allowances. If you are working more than one job, you should also claim zero allowances on the job where you make the least amount of money. The IRS also has an online calculator that you can use to make the computation.
Through the AARP Foundation Tax-Aide program, AARP Foundation is providing online tax counseling as a public service, and cannot guarantee the accuracy of the information provided. Your taxes are your responsibility. You are solely responsible for what you do in your own tax situation.
The AARP Foundation Tax-Aide Program is a volunteer-run, free tax-preparation and assistance service offered to low- and middle-income taxpayers with special attention to those age 60 and older. Our volunteers are trained and IRS-certified to understand individual federal-tax issues. Our volunteers provide tax assistance as a public service and cannot guarantee the accuracy of the information provided.