A taxpayer who doesn't make required estimated tax payments, or doesn't have enough tax withheld from their income, could be subject to penalties even if they are due a refund on their tax return.
Who needs to make estimated payments?
In general, estimated payments must be made for next year if two things are true:
- The taxpayer expects to owe at least $1,000 in tax.
- The sum of the taxpayer's withholdings and refundable credits is expected to be less than the smaller of:
90% of the tax expected on next year's tax return
100% of the tax shown on this year's tax return.
Exceptions to the general rule:
- If 2/3 of the taxpayer's gross income is from farming or fishing, substitute 66-2/3% for 90%.
- If the taxpayer's AGI for the current year is $150,000 (or $75,000 if next year's filing status will be MFS), substitute 110% for 100%.
Use the Estimates Calculator to estimate how much to pay each quarter
You can use the Estimates Calculator to project how much your client should pay quarterly toward their anticipated federal tax liability.
To access the Estimates Calculator, from the Main Menu of the tax return (Form 1040) select:
- Payments, Estimates & EIC
- Generate 20xx Estimates where xx is the next tax year
- Estimates Calculator - The calculator will populate the current year's information in its column. Fill in next year's column with the taxpayer's projected income, deductions, adjustments, and credits.
When you're done entering next year's information, click the last menu line to print the report. If tax is due, the report will show how much estimated tax should be paid quarterly.
- QBID is not included. If your client has Qualified Business Income, you'll need to separately estimate the QBID and add it to the amount on the Deductions menu line.
- If the taxpayer is a household employer they will need to include in the calculator next year's household employment taxes if either:
- They will have federal income tax withheld, e.g., from wages, pensions, annuities, gambling, or other income,
- They would be required to make estimated payments anyway even if they didn't include household employment taxes.