With major tax reform in its second year and taxpayers seeing its full effect on 2018 returns, the Internal Revenue Service is reminding taxpayers who pay estimated tax their third-quarter payment for 2019 is due Monday, Sept. 16.
The Tax Cuts and Jobs Act or TCJA enacted in December 2017, changed the way tax is adjusted for most taxpayers, including those with income not subject to withholding. By making quarterly estimated tax payments, however, taxpayers can stay current with their taxes the entire year.
Who must pay quarterly?
Usually, it’s those who are self-employed including people in the sharing economy, that need to pay quarterly installments of estimated tax. Also, investors, retirees, and others may need to make these payments, too. Why? Because a good portion of their income is not subject to withholding. Other income typically not subject to withholding includes interest, dividends, capital gains, alimony, and rental income.
Keep in mind special rules apply to various groups of taxpayers including farmers, fishermen, casualty and disaster victims, recently disabled, recent retirees, and people who get income at irregular times of the year.
Taxpayers can avert an underpayment penalty by owing less than $1,000 at tax time or by paying most of their taxes during the year. For 2019, this means making payments of at least 90 percent of the tax expected on a 2019 return.
In general, this means taxpayers must pay most of their taxes owed during the year as income is received. There are two ways:
- Withholding from pay, pension or certain government payments like Social Security; and/or
- Making quarterly estimated tax payments during the year.
Due to tax reform or a recent life change such as marriage, some taxpayers may need to increase or decrease the amount of tax they pay quarterly via the estimated tax system.
Tax Withholding Estimator
The new and improved tool is more mobile-friendly and replaces the Withholding Calculator on IRS.gov. The innovative design makes it simple for anyone to perform a Paycheck Checkup and have the right tax sum withheld during the year. The estimator gives workers, as well as retirees, self-employed individuals and other taxpayers step-by-step instructions for finding the correct amount of income tax they should have withheld from wages and pension payments.
The IRS suggests everyone utilize the estimator as soon as possible to make any potential tax withholding adjustments since there is still time this year.
To help taxpayers perform this task, the IRS is offering a free two-hour webinar on Thursday, Sept. 19 at 2 p.m., Eastern time. The webinar will feature step-by-step instructions on how to use the new estimator, as well as a live question-and-answer session. To sign up, visit the webinar’s page on IRS.gov.
Other IRS.gov resources
- Form 1040-ES, available on IRS.gov, is designed to help taxpayers figure estimated tax payments simply and accurately.
- IRS Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, which can help taxpayers determine whether they should pay the estimated tax.
- The “Pay” tab on the front page of IRS.gov provides complete tax payment information, how and when to pay, payment options and more.
The fourth and final 2019 estimated tax payment is due Jan. 15, 2020.