Now is the time to make your estimated tax payment
If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The 1st AND 2nd quarter due date is now here.
Due Date: Wednesday, July 15, 2020
You are required to pay, or withhold from your paycheck, at least 90 percent of your 2020 tax obligation or 100 percent of your 2019 tax obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:
- You may need to account for six months! Due to the pandemic, the 1st quarter estimated payment deadline was extended to July 15 along with the 2nd quarter due date. So your payment may need to account for six months of estimated taxes!
- Account for unemployment compensation income. If you receive unemployment compensation income, you need to review your income tax withholdings and potential tax obligation. This may require you to pay estimated taxes on or before July 15.
- Avoid an underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an 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 money to pay your required estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
- Self-employed workers need to account for FICA taxes. Remember to account for your 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 when you pay your estimated taxes.
- Don’t forget state obligations. With the exception of a few states, you are often required to make an estimated state tax payment at the same time you make a federal estimated tax payment. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.
* If your income is over $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.