Woman Making Estimated Tax Payments

What Are Estimated Tax Payments?

Some people don’t have to even think about what estimated payments are all about. They have their federal and state income taxes withheld by their employers, retirement payouts, and even Social Security benefits. However there are many who have no withholdings and face an excessive tax balance at the end of the year when they file their tax returns. In addition to self-employed folks, this occurs when people have income from investments, such as bank and bond interest, sales of stocks, and rental income to name a few. Many retirees and senior citizens make estimated tax payments.

The Internal Revenue Service is a “pay as you go” system. When you have a large balance due when you file your tax returns you may be subject to penalties that scare some people. Below are two exclusions they consider before imposing an “underpayment penalty” which is really just interest on the balance of the tax you owe. 

  1. If you have already paid in 90% of the previous year’s tax liability, there is no penalty. This is in place for those who may have gotten a salary increase or a better return on their investments than the previous year, among other situations.
  2. If your balance due is under $1,000. That’s just a flat amount. Exceed that and they begin calculating the interest you owe them.

How Are Estimated Tax Payments Calculated?

Most people tend to rely on accounting professionals to calculate their estimated payments. They are generally 4 equal payments throughout the year and the total is based upon the prior year tax. Ideally, you can divide the prior year tax liability by 4 and you’ve done your own calculations.

A small form with your basic personal information (name, address, Social Security Number) and the dollar amount of the payment accompanies your check. Not exactly rocket science.

Estimated Tax Payments Voucher

When Are Estimated Tax Payments Due?

They’re called quarterly payments, which is a bit of a joke in the accounting industry. There are 4 payments, but the timing is tricky, and if you do have to make these payments, be sure to mark your calendars in advance. For 2017 here are the dates you need to remember:

  • Payment #1:     April 15, 2017
  • Payment #2:    June 15, 2017
  • Payment #3     September 15, 2017
  • Payment #4     January 15, 2018

Yes, the 4th payment for 2017 is paid by January 15, 2018. It gives you 15 days after the end of the year, to make increased or decreased adjustments to your last payment if your situation changes.

Keep in mind if you are mailing the payments, you must include the payment slip, the “voucher” shown above, and mail it 3 days before the due date. It’s different than the tax returns, and requires mailing so it arrives by the deadline date. If you decide to pay online and use a credit card or debit card, you can make the payment as late as the actual due date. IRS has published all the payment details here.

What If I Need Help?

If you’re stuck and need help with determining your estimated tax payments for this year, feel free to contact me for a complimentary calculation so you can get it done and be able to rest easy. Simply visit my online calendar and pick a date and time that’s convenient for you. Have your prior year return available and you’ll be able to take it off your list of things to do.

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Ellen Wanamaker

Ellen Wanamaker is a retired dental hygienist, health and wellness educator, individual and small business tax/financial specialist, and author. If you are seeking to create and maintain a healthy physical and financial lifestyle, Ellen's contact information is available at her website www.ellenwanamaker.com.