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Estimated Tax Payments

We’re now approaching the 2nd major deadline of the year, 15th April 2019. This is the filing deadline for most types of individual federal and state income tax returns.

Whilst extensions are available (which we file for our clients), this doesn’t extend the time to pay any tax due. For those who have made estimated tax payments throughout the year, it is likely no payment is needed to the IRS prior to 15th April, however for those who expect to owe tax, but have not yet paid, 15th April is the last day in which this can be paid without being subject to late payment penalties and interest.

The IRS announced recently that it is amending Notice 2019-11, reducing the amount of tax one must have paid in 2018 (in advance of 15th April) to avoid the estimated tax penalty. Previously, for most individuals, you must have paid at least 100% of your prior years tax liability as estimated tax for 2018, in order to avoid the penalty. This has now been reduced to 80%.

This was specifically brought about due to the various changes to expected liabilities of taxpayers after the Tax Cuts and Jobs Act (TCJA) was introduced.

Under Sec. 6654, in order to avoid an underpayment penalty, taxpayers are required to make a payment that is the lesser of 90% of the tax shown on the return for the tax year, or 100% of the tax for the prior tax year (additional payments are required for individuals earning over $150,000 per year). Penalties apply for failing to make sufficient payments, or late payments under Sec. 6654.

With the new regulations, the IRS is waiving the addition to tax for failure to make estimated income tax payments for the 2018 tax year otherwise required to be made on or before 15th January 2019, provided that the taxpayer has paid at least 80% of tax due prior to that date.

If you require any clarification or assistance, please call us today.