WASHINGTON — The Internal Revenue Service today advised employees,
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, Jan. 15, 2019.
Although the Tax Cuts and Jobs Act (TCJA), 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, stock dividends, capital
gain distributions from mutual funds and stocks, bonds, 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.
A companion publication, Publication 505,
Tax Withholding and Estimated Tax, has additional details, including
worksheets and examples, that can be especially helpful to those who
have dividend or capital gain income, owe alternative minimum tax or
self-employment tax, or have other special situations.
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.
To help anyone wishing to sketch out their return early, the IRS has already posted the 2018 Form 1040 and its instructions. Many supplemental forms and schedules have also been posted and others are being added every day.
Two other useful resources are Publication 5307, Tax Reform: Basics for Individuals and Families, and Publication 5318, Tax Reform What’s New for Your Business. For other tips and resources, check out the Get Ready page on IRS.gov.