Estimated Tax Payment Due Dates Remain Unchanged
While the date to file 2020 Forms has been postponed to May 2020, the due dates for 2021 were not postponed.
The IRS has clarified 2021 estimated tax payments application and encourages individuals to apply a 2020 overpayment.
The first 2021 estimated tax installment is due April 15, 2021. If an individual tax payer has a 2020 overpayment and elects to credit the 2020 overpayment against the 2021 estimated tax, the date of which the 2020 overpayment is applied against the 2021 estimated tax depends on the date(s) of payment and the extent to which and overpayment exists as of April 15, 2021. An extension of time to file has no affect on either the date of payment or the date on which an overpayment exists.
An Overview of Estimated Tax Payments
Who is required to pay estimated tax?
Individuals: Sole proprietors, partners, S corporation shareholders must make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
Corporations: Generally, corporations must make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
* If your tax was more than zero in the prior year, you may have to pay estimated tax for the current year.
Who is not required to pay estimated tax?
Individuals may avoid having to pay estimated tax by asking their employer to withhold more tax from their earnings. This may be achieved through filing a Form W-4 with their employer.
Individuals that do not have to pay estimated tax for the current year if they meet all three of the following criteria:
1. No tax liability for the prior year
2. A U.S. citizen or resident for the whole year
3. The prior tax year covered a 12-month period
An individual has no tax liability for the prior year if the total was zero or if they did not have to file an income tax return
How does one figure out estimated tax?
Individuals generally use Form 1040-ES to figure estimated tax while corporations use Form 1120-W.
To figure estimated tax, one must first figure:
- Expected adjusted gross income
- Taxable income
- Taxes
- Deductions
- Credits for the year
When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for the prior year as a starting point. It may also be beneficial to use your prior year's federal tax return as a guide.
Contact Zen Wealth Management Group if you require further assistance in figuring estimated tax.
When do estimated taxes have to be paid?
The year is divided into four payment periods for estimated tax purposes. you may send estimated tax payments with Form 1040-ES by mail or online through the IRS.