While individuals who work for companies traditionally have taxes withheld from their paychecks, independent contractors and those who subsist on investment income should proactively pay estimated taxes. Payments are typically made incrementally, on the following quarterly deadlines:

  1. April 15
  2. June 15
  3. September 15
  4. January 15 of the following year

Key Takeaways

  • While individuals who work for companies traditionally have taxes withheld from their paychecks, independent contractors and those who subsist on investment income should proactively pay estimated taxes.
  • The deadlines for estimated tax payment for 2019 are consequently the following dates:
  1. April 17
  2. June 17
  3. September 16
  4. January 15, 2020

If a due date falls on a weekend or a legal holiday, payments must be issued on the next business day, therefore the deadlines for estimated tax payments for 2019 consequently fall on the following dates:

  1. April 17
  2. June 17
  3. September 16
  4. January 15, 2020

Bear in mind that those who file for personal income tax extensions must still adhere to the quarterly payment deadlines. Furthermore, even though you may pay the first installment of estimated taxes for 2019 on the same day as you file your 2018 tax return, these are entirely separate actions.

Calculating Payments/The $1,000 Rule

Those who project their 2019 tax bill to be under $1,000, after taking into account any withholding and refundable tax credits such as earned income credits and premium tax credits, do not need to bother with estimated taxes. All others should employ one of the following two approaches:

  • Pay estimated taxes to avoid or minimize penalties.
  • Increase withholding to cover projected taxes, above current withholding and refundable credits. Employed individuals should increase withholding by filing a new Form W-4 with their employers. Those receiving pension or annuity income should file Form W-4P with the plan administrators or other parties who pay out the benefits. Individuals may opt for voluntary withholding on such payments as Social Security benefits and unemployment benefits, by filing Form W-4V.

It can be difficult to project total taxes for 2019, at the start of the year. Fortunately, the following safe harbor provisions can help individuals avoid penalties for inaccuracy:

  • Current year safe harbor. If the estimated taxes you pay turn out to be at least 90% of your final bill for 2019 and you made payments on time, no penalties will apply.
  • Prior year safe harbor. If you use your 2018 tax bill as a barometer for your 2019 liability, you are likewise sure to be penalty free, as long as the taxes you pay are at least 100% of your 2018 bill. However, if your adjusted gross income for 2018 was more than $150,000 ($75,000 for those who are married filing separately), the 2019 payments must be at least 110% of the 2018 bill. It should be noted that different rules apply to farmers and fishermen.

If your income changes dramatically during the year, you can adjust the remaining estimated tax payments accordingly. For example, if you lose your job mid-year, you may reduce the rest of your estimated tax payments for 2019, to avoid or minimize overpayment.

What’s New for 2019

When using 2018's tax bill to project 2019’s liability, take the following adjustments into account:

  • Changes in circumstances for this year. Will a marriage or divorce cause changes to your filing status and the associated tax rates? Are you expecting a child that will result in a child tax credit? Will a new home purchase entitle you to added deductions for mortgage interest and real estate taxes?
  • Inflation adjustments. Dozens of tax breaks are adjusted annually for inflation, such as the IRS standard mileage rates. These may result in less tax liability, even if income remained consistent from 2017 to 2018.
  • New tax rules. The 2018 Tax Cuts and Jobs Act will have the following continued effects through 2025:
  1. The standard deduction essentially doubled.
  2. The personal exemption disappeared.
  3. Significant personal income tax bracket changes give taxpayers at both ends of the spectrum a significant tax cut while raising taxes for upper middle/lower upper-income level tax-payers.
  4. A slew miscellaneous deductions were jettisoned, including job relocation-related expenses (except for active duty military).

The Bottom Line

While estimating taxes isn’t an exact science, coming close to the correct amount will help individuals avoid penalties, as long as they're mindful of the quarterly deadlines. Finally, it's important to consult tax professionals, when questions about difficult issues arise.