Taxpayers who do not pay prescribed amounts of tax during the year through withholding or estimated payments are subject to the penalty for underpayment of estimated tax.
The two most common ways to pay taxes throughout the year are withholding and quarterly estimated payments. Estimated tax payments are generally required, if you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits.
Any tax liability in excess of withholding and estimated payments must be paid by the return’s due date (determined without extensions). Failure to make such payment may result in penalty and interest charges. The interest rate for underpayment of estimated tax has been increased from 4% to 5%.
The penalty and interest for underpayment of your estimated tax can be avoided if any of the following situations apply.
- Your tax due, after a reduction for FIT withheld, is less than $1,000.
- Your prior-year tax liability was zero.
- You paid 110% of your prior year tax based on the prior year safe-harbor requirement.
- Note for taxpayers with 2017 AGI of $150,000 or less, the safe harbor is 100% of the 2017 tax.
- You paid at least 90% of the 2018 tax.
All federal income taxes (FIT) withheld for a taxpayer shown on Forms W-2, W-2G, 1099-R, Schedule K-1, and any other IRS forms reporting FIT withheld are totaled and reported on line 16 of the redesigned 2018 Form 1040. Withholding forms do not need to be sent with an electronically filed return unless specifically requested.
Generally, the estimated tax equals the estimated amount of income tax including alternative minimum tax, plus the following:
- self-employment (SE) tax,
- the 3.8% net investment income tax (3.8% NIIT),
- the additional 0.9% Medicare tax on earned income (additional 0.9% Medicare tax),
- the excess advance premium tax credit repayment,
- LESS: any estimated credits and FIT withholding.
Pay Online with a Debit or Credit Card
Paying online is convenient, secure, and helps make sure we get your payments on time. You can pay using either of the following electronic payment methods. To pay your taxes online or for more information, go to www.irs.gov/Payments.