Taking gross income, subtract deductions and exemptions such as contributions to a 401(k) or pension plan. If you have a simple tax situation and have filled out your W-4 correctly, taxes already withheld from your paychecks might cover that bill for the year. Likewise, if you’re a freelancer or a taxpayer who must pay estimated taxes, payments you made during the year might also cover your bill. The requirement for making estimated taxes has both timeliness and amount elements.

The federal income tax system is progressive, so the rate of taxation increases as income increases. Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their tax returns. For example, a boat repair business might do more business in the summer. Under this method, they’d make unequal tax payments, based on when they receive their income, rather than four even payments. Doing so could help them avoid or lower a penalty because their required payment for one or more periods may be higher with this method.

Credits & Deductions

The Form 1040-ES package includes worksheets to help you account for differences between the previous and current year’s income and calculate the tax you owe. Using the Electronic Federal Tax Payment System (EFTPS) is the easiest way for individuals as well as businesses to pay federal taxes. Make ALL of your federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments using EFTPS. If it’s easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you’ve paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments.

By using a tax refund calculator, you’ll get an idea of how much you might get back or owe. This can help you plan your finances better, whether it’s setting aside money if you owe taxes or planning how to use a potential refund. Remember, it’s just an estimate, but it can give you a good starting point. The IRS, however, offers safe harbor guidelines to help you avoid underpayment penalties. For example, you’re in the clear if your withholdings pay 90 percent of the tax bill you’ll owe for 2021.

What Are Tax Credits?

» Submitting an estimated tax payment with your tax extension request? If you earn income as a freelancer or receive certain types of nonwage income, though, you may need to pay what the IRS calls “estimated quarterly taxes.” Here’s what those are and how they work. You’ll notice that the brackets vary depending on whether you are single, married or a head of household. While it often makes sense to file jointly, filing separately may be the better choice in certain situations.

• Based on these rates, this hypothetical $50,000 earner owes $6,307.50, which is an effective tax rate of about 12.7%.
• To determine how much you owe, check the income claimed and deductions taken on the previous year’s federal tax return to see if it will be comparable in the current year.
• Remember, even if you file for an extension, any payment you owe is still due by the April deadline.
• TOPEKA, Kan. (WIBW) – Total tax collections for March are $760.4 million; 7 million or 0.9% more than the monthly estimate.
• For example, a $1,000 deduction can only reduce net taxable income by $1,000.
• Corporations must pay estimated tax if the business is expected to have at least $500 in tax liability.

To see if they owe a penalty, taxpayers should use Form 2210. Plug-in Electric Motor Vehicle Credit–It is possible to receive a tax credit of up to $7,500 for buying an environmentally-friendly electric vehicle. It must be acquired brand new for use or lease and not resale, and used predominantly within the U.S. Qualified Dividends–These are taxed at the same rate as long-term capital gains, lower than that of ordinary dividends.