Phew! Tax season 2018 is over! So how did it turn out? Did you have to pay when you filed your 2017 returns? Do you know if you are withholding or paying enough for 2018?
April is a good time to check on what you are projected to owe for your 2018 taxes and see if it’s enough, or too much. That’s especially true this year because of the new tax law and changes to employer withholding tables. Word on the street is that the IRS was really aggressive in decreasing employer withholdings in order to increase paychecks. That can make employees feel rich now, but it could bite them hard when their 2018 tax returns are due.
If all your income comes from wages, chances are that your tax withholdings will cover your income tax liability. But if you are self-employed or receive other income, such as interest, dividends, capital gains, or rent, you might need to make estimated income tax payments. On top of that, if you don’t pay enough of your taxes on time, you could get hit with interest and penalties.
What the Required Payments?
If you owed additional tax for 2017, you may have to pay estimated tax for 2018. Estimated payments should be made if:
- You expect to owe at least $1,000 in tax for 2018, after subtracting your withholding and refundable credits.
- You expect your total withholding and refundable credits to be less than the smaller of 90% of your 2018 tax liability or 100% of your 2017 tax liability.
What Are the Penalties?
Penalties are assessed if the required payments described above aren’t made as income is received, at least quarterly. Interest penalties are assessed on the underpaid amount, accrued daily from the date it was due and until it is paid. Interest rates are adjusted periodically and daily accruals really add up.
What Should You Do?
Clearly, the IRS and other taxing agencies are serious about wanting their money on time. You can figure out your 2018 federal income tax bill by using the IRS Withholding Calculator, updated for the new tax law – . People who are self-employed or have investment income should check out the IRS web page about tax estimates.
When in doubt, or if you are not comfortable with DIY tax estimates, be sure to consult with a qualified tax professional. She or he will help you identify all the information needed to project your 2018 tax liabilities, pay enough taxes on time, and avoid interest penalties.