IRS Tax Reform Tax Tip 2019-109, August 13, 2019
Small business owners, self-employed people, and some wage earners should look into whether they should make estimated tax payments this year. Doing so can help them avoid an unexpected tax bill and possibly a penalty when they file next year.
Everyone must pay tax as they earn income. Taxpayers who earn a paycheck usually have their employer withhold tax from their checks. This helps cover taxes the employee owes. On the other hand, some taxpayers earn income not subject to withholding. For small business owners and self-employed people, that usually means making quarterly estimated tax payments.
Here’s some information about estimated tax payments:
- Taxpayers generally must make estimated tax payments if they expect to owe $1,000 or more when they file their 2019 tax return.
- Whether or not they expect to owe next year, taxpayers may have to pay estimated tax for 2019 if their tax was more than zero in 2018.
- Wage earners who also have business income can often avoid having to pay estimated tax. They can do so by asking their employer to withhold more tax from their paychecks. The IRS urges anyone in this situation to do a Paycheck Checkup using the Tax Withholding Estimator on IRS.gov. If the estimator suggests a change, the taxpayer can submit a new Form W-4 (PDF) to their employer.
- Aside from business owners and self-employed individuals, people who need to make estimated payments also includes sole proprietors, partners and S corporation shareholders. It also often includes people involved in the sharing economy.
- Estimated tax requirements are different for farmers and fishermen.
- Corporations generally must make these payments if they expect to owe $500 or more on their 2019 tax return.
- Aside from income tax, taxpayers can pay other taxes through estimated tax payments. This includes self-employment tax and the alternative minimum tax.
- The final two deadlines for paying 2019 estimated payments are September 16, 2019 and January 15, 2020.
- Taxpayers can check out these forms for details on how to figure their payments:
- Taxpayers can visit IRS.gov to find options for paying estimated taxes. These include:
- Direct Pay from a bank account.
- Paying by credit or debit card or the Electronic Federal Tax Payment System.
- Mailing a check or money order to the IRS.
- Paying cash at a retail partner.
- Anyone who pays too little tax (PDF) through withholding, estimated tax payments, or a combination of the two may owe a penalty. In some cases, the penalty may apply if their estimated tax payments are late. The penalty may apply even if the taxpayer is due a refund.
- For tax year 2019, the penalty generally applies to anyone who pays less than 90 percent of the tax reported on their 2019 tax return.