Form 1040-ES | Nesteggg Accounting

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 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 Sept. 16, 2019 and Jan. 15, 2020.
Taxpayers can check out these forms for details on how to figure their payments:
- Form 1040-ES, Estimated Tax for Individuals.
- Form 1120-W, Estimated Tax for Corporations.
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 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.

More information:
Form 1040 Instructions
Form 1120 Instructions

Business taxpayers should take another look at their estimated tax payments

Taxpayers who pay quarterly estimated tax payments may want to revisit the amount they pay. The Tax Cuts and Jobs Act changed the way most taxpayers calculate their tax. These taxpayers include those with substantial income not subject to withholding, such as small business owners and self-employed individuals. The tax reform changes include:

Revised tax rates and brackets
New and revised business deductions
Limiting or discontinuing deductions
Increasing the standard deduction
Removing personal exemptions
Increasing the child tax credit

As a result of these changes, many taxpayers may need to raise or lower the amount of tax they pay each quarter through estimated taxes.

Alternatively, many taxpayers who receive income not subject to withholding, but who also receive income as an employee, may be able to avoid the requirement to make estimated tax payments by having more tax taken out of their pay. These taxpayers can use the Withholding Calculator on IRS.gov to perform a Paycheck Checkup. Doing so now will help avoid an unexpected year-end tax bill and possibly a penalty in the future.

Taxpayers with more complex situations might need to use Publication 505, Tax Withholding and Estimated Tax, instead. This includes people who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents, and people with capital gains or dividends.

Form 1040-ES can also help taxpayers figure these payments simply and accurately. The estimated tax package includes a quick rundown of key tax changes, income tax rate schedules for 2019 and a useful worksheet for figuring the right amount of tax to pay.

Estimated tax penalty relief
The IRS is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year. This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under TCJA.

The IRS will generally waive the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty. For more information about the penalty and requesting the waiver, see Form 2210 and its instructions.

Separately, farmers and fishermen qualify for a waiver if they file their 2018 tax return and pay all taxes due by April 15, 2019; April 17 for residents of Maine and Massachusetts. The usual deadline is March 1.

Here’s what taxpayers should know about making 2019 estimated tax payments

Business taxpayers should take another look at their estimated tax payments

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