Estimated tax payments due Jan. 15

January 14, 2013

Did you get so caught up in the fiscal cliff fight and the subsequent tax rate changes for 2013 that you almost forgot that our first tax deadline of the new year is almost here?

Me, too. But tax time marched on and tomorrow, Jan. 15, is the due date for the final estimated tax payment of 2012. Dealing with estimated taxes also is today's Daily Tax Tip.

Estimated tax voucher 1040-ES 2012_4

The good news is that when it comes to 1040-ES forms and payments, either by check or money order payable to the U.S. Treasury, the Internal Revenue Service uses the same "timely delivered" criteria as it does for our annual returns.

You just have to have the envelope postmarked Jan. 15.

Of course, you can pay by credit card if you wish.

Or, like me, use the Electronic Federal Tap Payment System, or EFTPS.

However you choose to pay, just do so in time tomorrow.

A quick estimated tax primer: If you've never paid estimated taxes, you might one day need to, so here's a quick overview.

Most taxpayers meet their tax obligations via payroll withholding. But when you have income that isn't subject to withholding — anything from a side job as an independent contractor to alimony to prize money — then you have to pay the taxes on that, too.

And you must do so within the tax year instead of just catching up via a lump sum payment when you file your 1040 the next year. If you don't, you could face an underpayment penalty.

In most cases, people know they're going to get this income, typically from their work (either as self-employed or a second contracting job) or investments, so they file 1040-ES forms throughout the year to cover the taxes on the cash.

The IRS prefers you do this. And it prefers you estimate your annual untaxed earnings and then make four equal payments throughout the year according to the following schedule:

Payment # Due Date For income received in
1 April 15 Jan. 1 through March 31
2 June 15 April 1 through May 31
3 Sept. 15 June 1 through Aug. 31
4 Jan. 15
(of the next year)
Sept. 1 through Dec. 31

The estimated deadlines follow the same IRS rules when it comes to a
due date on a Saturday, Sunday or legal holiday; that is, you have until
the next business day to make the payment.

As you can see, the first payment of the calendar year is actually for the last bit of money made in the previous tax year on which there were no withholding taxes.

And you can skip the Jan. 15 payment if you file your full prior-year
2012 tax return by Jan. 31 and pay the entire balance due with
your return.

Extra 2012 dividends mean extra estimated taxes: If you received an early dividend payment before 2012 ended, be sure to count that money in your fourth quarter estimated payment.

A lot of companies handed out the earnings early so that shareholders could take advantage of 2012's lower qualified dividend rate. These specific dividends, and they're so noted on the 1099-DIV statements you'll get later this month or in early February, are taxed at the same rate as capital gains.

Those investment earnings are still taxed at a lower rate compared that applies to ordinary income in 2013 and future tax years.

But it's also true that in 2013 the dividends tax rate, like the capital gains rate, is going up a bit for higher earners.

The fiscal cliff tax act, officially known as the American Taxpayer Relief Act, increased the capital gains and dividend tax rate to 20 percent for taxpayers with adjusted gross incomes of $400,000 as single filers, $425,000 as head-of-household taxpayers and $450,000 as married couples filing jointly.

Those of us earning less than those thresholds, however, will still pay the 15 percent rate on these investment earnings. And folks in the 10 percent and 15 percent tax brackets will not owe a cent on their capital gains and dividends.

But that's for us to worry about when we pay our 2013 tax bills and make 2013 estimated tax payments.

For 2012's final estimated tax payment due tomorrow, Jan. 15, try to make sure it and your previous three 1040-ES payments are enough to get you within $1,000 of your eventual tax bill so you won't end up owing a penalty.

You also might find these items of interest:

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Happy New Tax Year! Are you ready to file your 2025 tax return? I know, too early to ask. But Tax Day 2026 will be here before we realize it. The Internal Revenue Service deadline to file and pay any tax we owe is the regular April 15 date this year. It’s also Tax Day for most of the states that collect income taxes from their residents, which is most of the states! If that seems too far away right now, don’t worry. As is the case every tax season, the ol’ blog’s tips and other tax reminders should help all of us meet our state and federal responsibilities. Procrastinators also will want to keep an eye on the countdown clock just below. It tracks how much time we have until April’s Tax Day, just in case we put off our annual tax task until the absolutely final hours and decide we need to instead get an extension request into the IRS by that date. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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