When the Tax Cuts and Jobs Act was passed last December, it wasn’t quite clear how it might affect self-employed and freelance taxpayers, as well as other taxpayers not subject to withholding like landlords, S corporation shareholders, partners in a partnership or taxpayers with significant investments. The Internal Revenue Service (IRS) has finally issued some guidance in the form of a revised tax form – with instructions – for taxpayers who must file and pay estimated tax. You can see the new federal form 1040-ES, Estimated Tax for Individuals, here (downloads as a pdf).
The form is available online (link in the paragraph above). However, you might already have one in your mailbox: The IRS also mailed one million form 1040-ES vouchers with instructions in late March to taxpayers who filed form 1040-ES last year.
Who needs to review the form? Typically, if you expect to owe more than $1,000 at tax time, you’ll want to make estimated payments using form 1040ES. Estimated taxes are typically paid quarterly. For the 2018 tax year, you can pay all of your estimated tax by April 17, 2018, or you can pay in four equal amounts on April 17, 2018; June 15, 2018; September 17, 2018; and January 15, 2019. You don’t have to make the January payment if you file your 2018 tax return by January 31, 2019, and pay the entire balance due with your return. If you skip a payment or pay late, you may be subject to a penalty.
What’s new on the form? Many taxpayers who file a form 1040-ES have gotten used to making regular payments of the same amounts from year to year. But, with tax reform, tax rates have changed (you can find the 2018 tax rates here). The standard deduction has doubled and itemized deductions have largely been trimmed back as compared to last year. Add in a loss of personal exemption amounts, an expanded child tax credit, and sweeping changes in the way that small businesses and pass-through entities are taxed, and your tax picture could look a lot different.
With those changes in mind, earlier this year, the IRS urged taxpayers who are subject to withholding to check out the new withholding calculator (more on that here) and consider whether to make changes on form W-4 (more on that here).
However, guidance for the self-employed and others who may pay estimated tax was not available until now. In addition to form 1040-ES, the IRS has released Publication 505, Tax Withholding and Estimated Tax, (downloads as a pdf) for 2018. Pub 505 includes worksheets and examples that can help you determine whether you need to pay estimated tax – and how much you’ll need to pony up before next Tax Day.