What are estimated tax payments?
Income taxes must generally be paid as you earn or receive income throughout the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive other types of income, such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments. If you are in business for yourself, you generally need to make estimated tax payments. Estimated tax payments are used to pay not only income tax, but other taxes as well, such as self-employment tax and alternative minimum tax. Publication 17, Your Federal Income Tax for Individuals, provides general rules to help you pay the income taxes you owe.
Will I be assessed a penalty if too little tax is withheld from my paycheck or I pay too little estimated taxes?
If you don’t pay enough towards your tax liability through withholding and estimated tax payments, you may be charged a penalty for underpayment of estimated taxes. You also may be charged a penalty if your estimated tax payments are late. Estimated tax payment requirements are different for farmers and fishermen. Publication 505, Tax Withholding and Estimated Tax, provides more information about estimated tax payment rules.
How can I avoid the underpayment penalty?
You may avoid a penalty for underpayment of estimated taxes if you pay at least 90* percent of your total tax on this year’s return (2018 return) or at least 100 percent of the total tax shown on last year’s return (2017 return). If your adjusted gross income for 2017 was more than $150,000 ($75,000 if your 2018 filing status is married filing a separate return), substitute 110 percent for 100 percent.
*A special waiver applies to tax year 2018 returns. If a taxpayer timely paid in at least 80% of the total tax, the IRS will waive the underpayment of estimated tax penalty for this year only.
In addition, you may avoid a penalty for underpayment of estimated taxes if you owe less than $1,000 in tax after subtracting your withholding and estimated tax payments and credits or if you did not have any tax liability for the preceding taxable year (subject to certain conditions). There are special rules for farmers and fishermen. Please refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
The penalty may be waived if:
- The failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
- You retired, after reaching age 62, or became disabled during the tax year for which estimated payments were required to be made or in the preceding tax year, and the underpayment was due to reasonable cause and not willful neglect.
I have already filed my 2018 tax return and paid an estimated tax penalty. Am I entitled to a refund?
Taxpayers who have already filed and paid the estimated tax penalty for tax year 2018 but who would have qualified for the waiver on Form 2210 may claim a refund of estimated tax penalties paid by filing Form 843, Claim for Refund and Request for Abatement, and including the statement "80% Waiver of estimated tax penalty" on line 7. They should leave lines 5a and 5b of the form blank. Form 843 can't be filed electronically.
How can I be sure about the tax I owed on my 2017 tax return?
If you do not have a copy of your 2017 Tax Return, you can get a free transcript of your 2017 tax record and three prior years’ tax records immediately by going online at IRS.gov. You can also get past years’ transcripts within five to 10 days from the time IRS receives your request by phone, by mail, or by fax. To view and print your transcripts online, go to IRS.gov and use the Get Transcript tool. To order by phone, call 800-908-9946 and follow the prompts. You can also request your transcript using your smartphone with the IRS2Go mobile phone app.
These FAQs are not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.