[12/20/18] IRS Tip
The Internal Revenue Service is advising taxpayers whose 2018 federal income tax withholding unexpectedly falls short of their tax liability for the year, that they can still avoid a tax-time surprise by making a quarterly estimated tax payment directly to the IRS. The deadline for making a payment for the fourth quarter of 2018 is Tuesday January 15, 2019.
Although the tax reform law enacted last December, lowered tax rates for most people, it also nearly doubled the standard deduction and limited or discontinued many deductions, among other changes. Though most 2018 tax filers are still expected to get refunds, the number who owe tax, and in some cases a penalty, is likely to be larger than in recent years, and many of them are likely to be people who have always gotten refunds.
Taxpayers who itemized in the past who now choose to take advantage of the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations, are at most risk of having too little tax withheld from their pay. This is especially true if they didn’t update their withholding earlier this year.
In addition, various financial transactions, especially those occurring late in the year, can often have an unexpected tax impact. Examples include year-end and holiday bonuses and real estate or other property sold at a profit.
For anyone at risk for a tax-time surprise, making an estimated tax payment soon is the fastest and easiest solution. Form 1040-ES, available on IRS.gov, includes a useful worksheet for figuring the right amount to pay. This form also includes a quick rundown of key tax changes and the federal income tax rate schedules for 2018.
The fastest and easiest way to make an estimated tax payment is to do so electronically using IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). For information on other payment options, visit IRS.gov/payments. If paying by check, be sure to make the check payable to the “United States Treasury.”
Though it’s too early to file a 2018 return, it’s never too early to get ready for the tax-filing season ahead. Though a good idea any year, starting early is a particularly good idea this year, when most tax filers will face revised tax rates and an altered array of deductions and credits.