Revised 1040-ES takes new 2018 tax law into account
Monday, April 16, 2018
April 17 is Tax Day 2018. That means, of course, that tax returns for last year are due.
But other tax tasks also share the annual April deadline. A big one for millions of taxpayers is the filing of the year's first estimated tax payment.
Estimated tax payments are made by folks who have income that isn't subject to withholding. This typically is money made from full-time self-employment, side hustles, investment income and/or prize or gambling winnings (which is often like investing, but I digress).
An earlier post has the scoop on these four extra tax payments. For today's purposes, the focus is on figuring out how much to pay.
New tax laws affect estimated payments: While the general filing of Form 1040-ES hasn't changed, the Tax Cuts and Jobs Act (TCJA) that took effect (for the most part) this year has changed the way estimated tax is calculated.
The key modification is the new law's tax rates and brackets. In addition, many factors that affect estimated tax calculations — revised business expense deductions, increased standard deduction amounts, elimination of personal exemptions, increased the child tax credit and limited or discontinued certain deductions — also will affect 1040ES filings.
That means that many of us (yes, I'm a long-time estimated taxpayer, too) will need to increase or reduce how much tax we pay each quarter via our estimated filings.
To make things easier, the Internal Revenue Service has released a revised estimated tax package.
The IRS also mailed 1 million of the estimated tax vouchers with instructions in late March to taxpayers who paid that way last year. If, however, you meet your 1040-ES obligations online, the package is now available on IRS.gov.
Among other things, the package includes a quick rundown of key tax changes, income tax rate schedules for 2018 and a useful worksheet for figuring the right amount to pay.
The companion publication IRS Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, that can help taxpayers determine whether they should pay estimated tax. It addresses such situations as dividend or capital gain income, alternative minimum tax and other special situations.
Refund to tax payment: If you're getting a tax refund on your 2017 return, you can direct the IRS to apply all or part of that amount to your 2018 estimated tax bill.
If not, then you need to get this year's first estimated tax payment to the U.S. Treasury by April 17. You have a variety of payment options.
Then And mark your calendars. As the table below shows, the other 2018 tax year 1040-ES due dates this are June 15, Sept. 17* and Jan. 15, 2019.
|Payment #||Due Date*||For income received in|
|1||April 15||Jan. 1 through March 31|
|2||June 15||April 1 through May 31|
|3||Sept. 15||June 1 through Aug. 31|
|4||Jan. 15 of the next year||Sept. 1 through Dec. 31|
Ignoring ES can be costly: With the spate in recent years of entrepreneurial endeavors and increasing side hustle options, the number of people liable for estimated taxing also has grown.
Many, however, apparently don't think it's worth the trouble to file estimated taxes. Don't follow their ill-advised pattern.
The IRS says it has seen an increasing number of taxpayers subject to estimated tax penalties, which apply when someone underpays his or her taxes.
The number of people who paid this penalty jumped from 7.2 million in 2010 to 10 million in 2015, an increase of nearly 40 percent. The penalty amount varies, but can be several hundred dollars.
You also might find these items of interest:
- How to avoid estimated tax penalties
- 3 ways to navigate estimated tax penalty safe harbors
- Amounts you'll need to calculate your estimated tax payments
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