How to Calculate Tax Payments

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The United States operates on a pay-as-you-go income tax system, and expects you to make tax payments throughout the year in keeping with your income. Federal withholdings from your gross pay may cover this requirement completely. If you have other income, or if you aren't having enough withheld, you should make quarterly estimated tax payments. According to the IRS, you must pay estimates if you will owe $1,000 or more on your tax return.

Things You'll Need

  • Last year's tax return
  • Form 1040-ES & Instructions
  • Calculator
  • Review your tax return from last year. Make note of any areas where you expect a significant difference in income or deductions this year.

  • Find your total tax on line 46 of Form 1040 on last year's return. As a rule, if you pay in 90 percent of this year's tax or 100 percent of last year's tax, penalties will not apply this year.

  • Enter your expected adjusted gross income for this year on line 1 of the 1040-ES. Use last year's adjusted gross income as a guideline.

  • Determine whether you will itemize your deductions or use the standard deduction, and enter the appropriate amount on line 2. Subtract line 2 from line 1, and enter that amount on line 3.

  • Add your personal exemptions and enter the total on line 4. Subtract line 4 from line 3, and enter that amount on line 5.

  • Use the Tax Rate Schedules in the Form 1040-ES instructions to figure your tax, based on the amount on line 5. Enter your tax on line 6.

  • Enter any applicable information on lines 7 through 13. Perform the required calculations, following the instructions.

  • Multiply the amount on line 13c by 90 percent and enter the total on line 14a. Write your total tax from last year on line 14b. Take the smaller of lines 14a or 14b, and enter it on line 14c.

  • Estimate your withholding this year and enter it on line 15. Use last year's withholding as a guide.

  • Subtract line 15 from line 14c. Enter the difference on line 16a. If line 15 is greater than or equal to line 14c, you do not have to pay estimated taxes and can stop your calculation here.

  • Subtract line 15 from line 13c and enter the difference on line 16b. If line 16b is less than $1,000, you do not have pay estimates and can stop your calculation here.

  • Divide line 16b by four to determine your quarterly estimated tax payment amount.

Tips & Warnings

  • Estimated tax payments are due on April 15, June 15, September 15 and the following January 15. If any of these dates fall on a weekend or federal holiday, the payment is due the next business day.
  • You can pay estimated taxes more often than quarterly.
  • Check your state income tax laws to determine if you also need to pay state estimates.
  • If your income varies throughout the year, make sure your estimated tax payments reflect that variation. Underpayment in one quarter may result in a penalty even if you owe less than $1,000 on your tax return.

References

  • Photo Credit tax time image by Tom Oliveira from Fotolia.com
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