03 Apr Reminder: 1st Quarter Estimated Taxes Due
If you have not already done so, now is the time to review your tax situation and make a 2017 estimated quarterly tax payment using Form 1040-ES. The first quarter due date is now here.
First-quarter due date: Tuesday, April 18, 2017.
Remember, you are required to withhold (pre-pay) at least 90 percent of your current tax obligation, or 100 percent of last year’s federal tax obligation throughout the tax year.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a quarterly payment might be necessary in addition to what is being withheld from any paychecks. Here are some things to consider:
Underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. So a quick payment at the end of the year may not help avoid the underpayment penalty.
W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 wage withholdings to make up the difference.
Self-employed. Self-employed workers must account for the need to pay Social Security and Medicare taxes as well. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter to pay your estimated taxes.
Use your refund? An alternative option to pay your first-quarter estimated tax is to apply some or all of your prior-year tax refund towards this year’s tax bill.
Pay more in the first quarter. By paying a little more than necessary in the first quarter you can then adjust your payments later in the year. This helps reduce the risk of an underpayment penalty based on the timing of your estimated payments.
Not sure if you need to make a quarterly payment? Take a quick look at your recently filed tax return to see the amount of tax you paid last year. Divide the tax by the number of paychecks for the year. Is enough being withheld from your paycheck? Consider adjusting your withholdings with your employer if you think it is necessary to cover last year’s tax bill.
* If your income is more than $150,000 ($75,000 if married filing separate), you must pay 110 percent of last year’s tax obligation to be safe from an underpayment penalty.