IRS reminder: June 17 is next deadline for those who pay estimated taxes

IRS reminder: June 17 is next deadline for those who pay estimated taxes

Upcoming quarterly deadlines include September 16 and January 15, 2020

The Internal Revenue Service today reminded taxpayers who pay estimated taxes that Monday, June 17, is the deadline for the second estimated tax payment for 2019. Examples of those who often need to pay quarterly estimated taxes are self-employed individuals, retirees, investors, and some individuals involved in the sharing economy, among others.

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. Most TCJA changes took effect in 2018. As a result, many taxpayers ended up receiving 2018 refunds that were larger or smaller than expected, while others unexpectedly owed additional tax when they filed earlier this year. Because of this, taxpayers should consider whether they need to adjust the amount of tax they pay each quarter through estimated tax payments.

Form 1040-ES, available on IRS.gov, is designed to help taxpayers figure these payments simply and accurately. The estimated tax package includes a quick rundown of key tax changes, income tax rate schedules for 2019 and a useful worksheet for figuring the right amount to pay.

A companion publication, Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, which can help taxpayers determine whether they should pay estimated tax. This includes those who have dividend or capital gain income, owe alternative minimum tax or have other special situations.

Who needs to pay quarterly?

Most often, self-employed people, including some individuals involved in the sharing economy, need to pay quarterly installments of estimated tax. Similarly, investors, retirees and others – a substantial portion of whose income is not subject to withholding – often need to make these payments as well. Other income generally not subject to withholding includes interest, dividends, capital gains, rental income and some alimony.

Because the U.S. tax system operates on a pay-as-you-go basis, taxpayers are required by law to pay most of their tax liability during the year. For 2019, this means that an estimated tax penalty will normally apply to any party that pays too little tax, usually less than 90 percent, during the year through withholding, estimated tax payments or a combination of the two.

Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees, and those who receive income unevenly during the year. In addition, there’s an exception to the penalty for those who base their payments of estimated tax on last year’s tax. Generally, taxpayers won’t have an estimated tax penalty if they make payments equal to the lesser of 90 percent of the tax to be shown on their 2019 return or 100 percent of the tax shown on their 2018 return (110 percent if their income was more than $150,000). See Form 2210 and its instructions for more information.

Employees have a choice

Many employees who also receive income from other sources may be able to forgo making estimated tax payments and instead increase the amount of income tax withheld from their pay. One way they can do this is by first completing the Deductions, Adjustments, and Additional Income Worksheet in the W-4 instructions and then claiming fewer withholding allowances on the Form W-4 they give to their employer. Alternatively, they can ask their employer to withhold an additional flat-dollar amount each pay period on their Form W-4.

Perform a Paycheck Checkup

With many key tax changes now in their second year, the IRS urges all employees, including those with other sources of income, to perform a Paycheck Checkup now. Doing so now will help avoid an unexpected year-end tax bill and possibly a penalty. The easiest way to do this is to use the Withholding Calculator available on IRS.gov. 

To use the Withholding Calculator most effectively, users should have a copy of last year’s tax return and recent paystub. After filling out the Withholding Calculator, the tool will recommend the number of allowances the employee should claim on their Form W-4. Though primarily designed for employees who receive wages, the Withholding Calculator can also be helpful to some recipients of pension and annuity income.

If the Withholding Calculator suggests a change, the employee should fill out a new Form W-4 and submit it to their employer as soon as possible. Similarly, recipients of pensions and annuities can make a change by filling out Form W-4P and giving it to their payer.

Employees who expect to receive long term capital gains or qualified dividends, or employees who owe self-employment tax, alternative minimum tax, or tax on unearned income of minors should use the instructions in Publication 505 to check whether they should change their withholding or pay estimated tax.

How and when to pay

The IRS provides two free electronic payment options, where taxpayers can schedule their estimated and other federal tax payments up to 30 days in advance, with Direct Pay (bank account) or up to 365 days in advance, with the Electronic Federal Tax Payment System (EFTPS). They can also visit IRS.gov/payments to explore options to pay online, by phone or with their mobile device and the IRS2Go app. Taxpayers paying by check or money order must make it payable to the “United States Treasury.”

Taxpayers can pay their 2019 estimated tax payments any time before the end of the tax year. Most taxpayers make estimated tax payments in equal amounts by the four established due dates. The three remaining due dates for tax year 2019 estimated taxes are June 17, September 16, and the final payment is due January 15, 2020.

Taxpayers due a refund on their 2018 federal income tax return may be able to reduce or even skip one or more of these payments by choosing to apply their 2018 refund to their 2019 estimated tax. See Form 1040 and its instructions for more information.

Taxpayers in presidentially-declared disaster areas may have more time to make these payments without penalty. Visit the Tax Relief in Disaster Situations page for details.

More information about tax withholding and estimated tax can be found on the agency’s Pay As You Go webpage, as well as in Publication 505.

For taxpayers living, working outside the U.S., file a return by June 17

The Internal Revenue Service today reminded taxpayers living and working outside of the United States that they must file their 2018 federal income tax return by Monday, June 17.

The June 17 deadline applies to both U.S. citizens and resident aliens abroad, including those with dual citizenship. An extension of time to file is available for those who cannot meet this filing deadline.

Essential points to consider:

Most people abroad need to file

Just as most taxpayers in the United States are required to file their tax returns with the IRS by April 15, those living and working in another country are also required to file. However, an automatic two-month deadline extension is granted and in 2019 that date is June 17.

An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A taxpayer qualifies for the special June 17 filing deadline if both their tax home and abode are outside the United States and Puerto Rico. Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 17. Be sure to attach a statement indicating which of these two situations apply.

Payments for taxes owed were due April 15

Interest, currently at the rate of 6 percent per year, compounded daily, still applies to any tax payment received after the original April 15 deadline. For details, see the “When to File and Pay” section in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Reporting required for foreign accounts and assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Foreign accounts reporting deadline 

Separate from reporting specified foreign financial assets on their tax return, taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2018, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return, April 15, 2019, but FinCEN is granting filers missing the original deadline an automatic extension until October 15, 2019, to file. Specific extension requests are not required.

Automatic extensions available

Taxpayers abroad who can’t meet the June 17 deadline can still get more time to file, but they need to ask for it. An extension request must be filed by June 17. Automatic extensions give people until October 15, 2019, to file; however, this does not extend the time to pay tax.

One of the easiest ways to get an extension of time to file is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an extension on Form 4868. Requests may also be made using a paper form by following the instructions provided on the form.  Form 4868 requires taxpayers to estimate their tax liability and pay any amount due.

Another option is to pay electronically, and the IRS will automatically process an extension when taxpayers select Form 4868 and are making a full or partial federal tax payment using Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or a debit or credit card. There is no need to file a separate Form 4868 when making an electronic payment and indicating it is for an extension. International taxpayers who do not have a U.S. bank account should refer to the Foreign Electronic Payments section on IRS.gov for more payment options and information.

Combat zone taxpayers get more time without having to ask for it

Members of the military and eligible support personnel serving in a combat zone have at least 180 days after they leave the combat zone to file their tax returns and pay any taxes due. This includes those serving in Iraq, Afghanistan and other combat zones. A list of designated combat zones can be found in Publication 3, Armed Forces’ Tax Guide.

Various circumstances affect the exact length of the extension available to any given taxpayer. Details, including examples illustrating how these extensions are calculated, can be found in the Extensions of Deadlines section in Publication 3.

Choose Free File

U.S. citizens and resident aliens living abroad can use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $66,000 or less can use brand-name software to prepare their tax returns and then e-file them for free. A limited number of companies provide tax software that can accommodate foreign addresses. A second option, Free File Fillable Forms (PDF), the electronic version of IRS paper forms, has no income limit and is best suited to people who are comfortable preparing their own tax return.

Both the e-file and Free File electronic filing options are available until Oct. 15, 2019. Check out the e-file link on IRS.gov for details on the various electronic filing options. Free File is not available to non-resident aliens required to file Form 1040-NR.

Report in U.S. dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both FINCEN Form 114 and IRS Form 8938 require the use of a December 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction. Generally, the IRS accepts any posted exchange rate that is used consistently. For more information on exchange rates, see Foreign Currency and Currency Exchange Rates.

Expatriate reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2018 must file a dual-status alien tax return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service, Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and Notice 2009-85 (PDF), Guidance for Expatriates Under Section 877A, for further details.

Check withholding

Taxpayers who owe tax for 2018 can avoid having the same problem for 2019 by increasing the amount of tax withheld from their paychecks. For help determining the right amount to withhold, use the Withholding Calculator on IRS.gov.

IRS ends Offshore Voluntary Disclosure Program (OVDP)

The IRS will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, whistleblower leads, civil examination and criminal prosecution. The IRS continues to use Streamlined Filing Compliance Procedures that will remain in place and be available to eligible taxpayers. But, as with OVDP, the IRS said it may end the Streamlined Filing Compliance Procedures at some point. Full details of the OVDP and Streamlined Procedures are available at Options Available for U.S. Taxpayers with Undisclosed Foreign Financial Assets.

Taxpayers concerned that their non-compliance may rise to the level of tax and tax-related crimes may consider coming into compliance with the tax law and avoid potential criminal prosecution through the updated Voluntary Disclosure Practice by preparing Form 14457 (PDF).  More information on the updated procedures for the Voluntary Disclosure Practice can be found in the November 20, 2018, Interim Guidance Memo LB&I-09-1118-01 (PDF)

More information:

IRS warns of higher penalty for some tax returns filed after June 14

The Internal Revenue Service urges taxpayers who owe tax and have not filed their 2018 return to act before Friday, June 14, before a larger penalty kicks in.

The failure-to-file penalty is assessed if there is unpaid tax and the taxpayer fails to file a tax return or request an extension by the April due date. This penalty is usually 5 percent of tax for the year that’s not paid by the original return due date. The penalty is charged for each month or part of a month that a tax return is late. But, if the return is more than 60 days late, there is a minimum penalty, either $210 or 100 percent of the unpaid tax, whichever is less.

Special filing deadline rules

Special deadlines affect penalty and interest calculations for those who qualify, such as members of the military serving in combat zonestaxpayers living outside the U.S., and those living in declared disaster areas.

Taxpayers in a combat zone may be able to further extend the filing deadline and can find details in Publication 3, Armed Forces’ Tax Guide (PDF). For taxpayers living and working outside the U.S. and Puerto Rico, or on military duty, the deadline to file is June 17. They also have until June 17 to file Form 4868 for an extension until October 15. An extension of time to file is not an extension of time to pay any tax due.

When the president declares a major disaster, the IRS can postpone certain deadlines for taxpayers who reside or have a business in the impacted area. If an affected taxpayer receives a late filing or late payment penalty notice from the IRS, and they filed or paid by the deadline stated in the IRS news release of postponement of the deadlines for filing and/or paying, they should call the telephone number on the notice to see if IRS can abate the penalty due to the disaster.

Penalty relief may be available

Taxpayers who have filed and paid on time and have not been assessed any penalties for the past three years often qualify to have the penalty abated. See the First-Time Penalty Abatement page on IRS.gov. A taxpayer who does not qualify for the first-time penalty relief may still qualify for penalty relief if their failure to file or pay on time was due to reasonable cause and not due to willful neglect. Taxpayers should read the penalty notice and follow its instructions to request this relief. For more information, see the Penalty Relief page on IRS.gov.

The IRS also expanded the penalty waiver for those whose 2018 tax withholding and estimated tax payments fell short of their total tax liability for the year. The penalty will generally be waived for any taxpayer who paid at least 80 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.

In addition to penalties, interest will be charged on any tax not paid by the regular April due date. For individual taxpayers it is the federal short-term interest rate plus 3 percentage points, currently 6 percent per year, compounded daily. Interest stops accruing as soon as the tax is paid in full. Interest cannot be abated.

Payment options

Many taxpayers delay filing because they are unable to pay what they owe. Often, these taxpayers qualify for one of the payment options available from the IRS. Taxpayers can use their online account to view the amount they owe, make payments and apply for an online payment agreement. These include:

  • Installment Agreement — Individuals who owe $50,000 or less in combined tax, penalties and interest can request a payment plan using the IRS’s Online Payment Agreement application. Those who have a balance under $100,000 may also qualify for a short-term agreement. An installment agreement, or payment plan can usually be set up in minutes. Requesters receive immediate notification of approval. Visit Payment Plans, Installment Agreements at IRS.gov for more information.
     
  • Offer in Compromise — Struggling taxpayers may qualify to settle their tax bill for less than the full amount owed by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool.

Check withholding

Taxpayers who owe tax for 2018 can avoid having the same problem for 2019 by increasing the amount of tax withheld from their paychecks. For help determining the right amount to withhold, use the Withholding Calculator on IRS.gov