is used to figure and pay your estimated tax. Estimated tax is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.). In addition, if you do not elect voluntary withholding, you should make estimated tax payments on unemployment compensation and the taxable part of your social security benefits.
In most cases, for 2016, you must make estimated tax payments if you expect to owe at least $1,000 in tax for 2016 (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of: (1) 90% of the tax shown on your 2016 tax return, or (2) 100% of the tax shown on your 2015 tax return (110% if your 2015 adjusted gross income is more than $150,000).
Use the worksheet on Form 1040-ES
to calculate your 2016 estimated tax. The due dates of the 2016 estimates are April 17, June 15, and September 17, 2016, and January 15, 2017. When the due date is on a weekend, the due date is extended to Monday.
Form 1040-ES Tax Tips
- If you also receive salaries and wages, you may be able to avoid having to make estimated tax payments on your other income by asking your employer to take more tax out of your earnings. To do this, file a new Form W-4 with your employer and decrease the number of allowances on the W-4.
- Don't give the government an interest-free loan by overpaying your estimated tax and withholdings. If your 2016 income has increased from your 2015 income, you can still just pay in 100% of your 2015 tax (110% if your AGI is over $150,000). Then pay the rest of the tax that you owe on April 15, 2017 when you file your 2016 tax return. If you pay in the safeharbor amount of 100% of the previous year's tax, then there is no underpayment penalty no matter how much tax you owe on April 15th.
- Remember that the estimated tax payments need to cover self-employment tax also. Many people starting new businesses forget about the 15.3% self-employment tax on their business profits.
- Besides mailing in estimated tax payments with Form 1040-ES, you can go online at www.eftps.gov to make an estimated tax payment. The EFTPS online system is free to use. You can pay an estimated tax payment by credit card by going to www.pay1040.com or www.officialpayments.com. Fees are charged for using a credit card to pay estimated tax payments.