Your head is probably spinning right now, trying to figure out when your 2019 taxes need to be filed and paid, especially if you live in a state that is not following the IRS deadlines changes (looking at you, Virginia). As if that weren’t bad enough, the IRS has changed the due dates for 2020 estimated tax payments at least twice (so far) and several states (and the District of Columbia) are not changing 2020 tax due dates.
Confused yet? Your safest move is to check the website for your state and www.IRS.gov for the latest information. But no matter what dates your payments are due, determining whether you need to make estimated tax payments for this year doesn’t look different than in the past.
Three things to know about 2020 estimated taxes:
- Who Needs to Pay Estimated Taxes?
If all your income comes from wages, the taxes that your employer withholds and remits for you probably covers your income tax liability. If you are self-employed or if you receive investment or rental income that is not covered by tax withholdings, you should assess your need to make estimated income tax payments. That starts with projecting your federal and state income tax liabilities for 2020. The IRS website explains what to include and how to estimate your tax at this link
https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes.
- How Much Do You Need to Pay?
Estimated tax payments are based on your estimated income and resulting tax liability. You must pay estimated tax for 2020 if you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits. Withholdings or estimated payments must equal or exceed the smaller of 90% of your 2020 tax liability, or 100% of your 2019 tax liability. Calculate your 2020 tax liability at this link https://www.irs.gov/forms-pubs/about-form-1040-es. See your state’s tax website for information to project your 2020 state tax liability.
- What if You Don’t Pay Enough?
Interest is calculated on any unpaid balance due, accrued daily from the time the tax liability was created, aka when your income was earned or received, and when the tax is paid. Daily interest accruals can really add to your tax bill, so staying on top of any necessary tax payments is essential to managing expenses. Clearly, the IRS is serious about getting paid on time. Figure your 2020 federal income tax bill by using the IRS Withholding Estimator at https://www.irs.gov/individuals/tax-withholding-estimator.
If you paid a lot when you filed your 2019 income tax return or have income with no tax withholdings, you should look at whether you need to pay 2020 estimated taxes. Don’t feel comfortable doing this yourself? The IRS can also help you find a qualified tax professional to help you out, at this link https://www.irs.gov/tax-professionals/choosing-a-tax-professional.