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Friday June 22, 2018

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Updating Your Estimated Tax Payments

With passage of the Tax Cuts and Jobs Act, most Americans will experience a change in the amount of tax due. Many taxpayers will have lower taxes due to the higher standard deduction and increased child credit amount. Some upper-income taxpayers may face a tax increase due to the new limit on deductions for state and local taxes.

To help taxpayers understand the impact of these changes, the IRS has created a Withholding Calculator on IRS.gov. Acting IRS Commissioner David Kautter encouraged use of the calculator and noted, "Until every employee visits the Withholding Calculator, I am not a happy guy." Kautter hopes to keep promoting the calculator and desires "a couple of hundred million" taxpayers to use it to determine their estimated 2018 taxes.

In IR-2018-138, the Service encouraged taxpayers who make quarterly estimated tax payments to update their plans. Quarterly estimated tax payments for taxpayers who are self-employed, retired or have investment income are due on April 18, June 15, September 17 and January 15, 2019.

Some taxpayers reduced their estimated payment amounts by allocating their 2017 tax refund to their 2018 taxes. Estimated tax payments may be made electronically using IRS Direct Pay or the Treasury Department Electronic Federal Tax Payment System (EFTPS).

Estimated tax payments are generally made in four quarterly amounts. Most taxpayers may avoid a penalty by paying 90% of the tax due on their 2018 return or 100% of their 2017 tax return amount. If a taxpayer's 2017 income was over $150,000, the safe harbor is 110% of the 2017 income tax.

There are exceptions to the underpayment penalty for farmers, fisherman, casualty and disaster victims, the disabled, recent retirees and those who have unusual income amounts during the year. IRS Form 2210 and Pub. 505 offer additional information on estimated payments.

Taxpayers may choose to avoid estimated tax payments by adjusting their withholding exemptions. Taxpayers may increase their tax payments by adjusting IRS Form W-4 Withholding Allowances. This may increase withholding amounts and help avoid any tax penalties.

Published June 15, 2018
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