Form 1040-ES: Estimated Tax for Individuals (2018)
Understanding your tax obligations throughout the year can save you from penalties and surprise bills come April. Form 1040-ES helps taxpayers calculate and pay estimated taxes on income that isn't subject to withholding. Whether you're self-employed, receive investment income, or have other sources of unwithheld income, this guide will walk you through everything you need to know about estimated tax payments.
What Form 1040-ES Is For
Form 1040-ES is the tool the IRS provides to help you calculate and pay estimated taxes throughout the year on income that isn't subject to withholding. Think of it as a pay-as-you-go system for taxes on money that doesn't automatically have taxes taken out, like income from self-employment, freelancing, contract work, interest, dividends, rental income, alimony, and capital gains. The form includes worksheets to help you estimate what you'll owe for the year and payment vouchers to submit with your quarterly payments.
This form matters because the U.S. tax system operates on a pay-as-you-earn principle. If you receive wages from an employer, taxes are withheld from each paycheck. But if you're earning income without withholding, you need to make these estimated payments yourself to avoid penalties and a large tax bill come April. The form helps bridge this gap by breaking your annual tax obligation into manageable quarterly installments.
For 2018, Form 1040-ES became especially important due to significant tax law changes under the Tax Cuts and Jobs Act, including new tax rates, an increased standard deduction, suspended personal exemptions, modified itemized deductions, and a new qualified business income deduction under Section 199A.
When You’d Use Form 1040-ES
You generally must use Form 1040-ES if you expect to owe at least $1,000 in tax after subtracting your withholding and refundable credits, and you expect your withholding and refundable credits to be less than the smaller of either 90% of your 2018 tax or 100% of your 2017 tax (110% if your 2017 adjusted gross income exceeded $150,000, or $75,000 if married filing separately).
Common situations requiring estimated tax payments include operating a sole proprietorship or partnership, working as an independent contractor or in the gig economy, earning substantial investment income, receiving rental income, or having other income sources without automatic withholding like unemployment compensation or taxable Social Security benefits. You'll also use this form if you're self-employed and need to pay self-employment tax covering Social Security and Medicare obligations.
There's no "late" version of Form 1040-ES since it's used for ongoing quarterly payments rather than annual filing. If you miss a payment deadline, you simply make the payment as soon as possible and may owe an underpayment penalty calculated when you file your annual return. You can amend your estimated tax calculations at any time by refiguring your worksheet and adjusting future payments accordingly.
You don't need to use Form 1040-ES if you had no tax liability for the full 12-month 2017 tax year, if you were a U.S. citizen or resident alien for all of 2017. You also might avoid estimated payments by increasing withholding from wages, pensions, or annuities using Form W-4 or W-4P instead.
Key Rules or Details for 2018
The safe harbor rules provide important protection against penalties. You won't owe an underpayment penalty if your total estimated payments and withholding equal at least 90% of your current year's tax or 100% of last year's total tax (110% if you're a higher-income taxpayer with adjusted gross income over $150,000). For farmers and fishermen who receive at least two-thirds of their gross income from farming or fishing, the requirement drops to 66⅔% of current year tax.
Estimated tax payments are due quarterly: April 17, June 15, and September 17 in 2018, with a final payment due January 15, 2019. However, you can skip the January payment if you file your complete 2018 tax return and pay any balance due by January 31, 2019. These deadlines follow an uneven calendar—the first and second payments are two months apart, the second and third are three months apart, and the third and fourth payments are four months apart.
For 2018 specifically, the new qualified business income deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from a qualified trade or business, subject to various limitations. The 2018 tax rates were reduced to seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The standard deduction increased significantly to $24,000 for married filing jointly, $18,000 for head of household, and $12,000 for single or married filing separately. Personal exemptions were suspended for 2018, which represents a major change in calculating taxable income.
Married couples generally can make joint estimated tax payments, but cannot do so if either spouse is a nonresident alien, if they're separated under a divorce or separate maintenance decree, or if they have different tax years. Each payment must be at least as much as one-fourth of your required annual amount to avoid penalties, though you can pay more frequently or use the annualized income installment method if your income arrives unevenly throughout the year.
Step-by-Step Guide (High Level)
Start by gathering your information: your 2017 tax return and instructions, understanding of expected 2018 income and deductions, and awareness of the tax law changes for 2018. You'll need to estimate your adjusted gross income, deductions, credits, and other taxes for the coming year.
Complete the 2018 Estimated Tax Worksheet included in Form 1040-ES. Begin by estimating your expected 2018 adjusted gross income on line 1, remembering to account for the deduction for self-employment tax if applicable. Calculate your deductions on line 2—either your itemized deductions (including the new $10,000 cap on state and local taxes) or the increased standard deduction for 2018. Add any qualified business income deduction under Section 199A if eligible.
Subtract your deductions from your income to get your taxable income, then calculate your tax using the 2018 Tax Rate Schedules provided with the form. Add any alternative minimum tax and other applicable taxes like self-employment tax or Additional Medicare Tax. Subtract any credits you expect to claim, including the enhanced child tax credit (up to $2,000 per qualifying child) and the new credit for other dependents (up to $500).
The worksheet will help you determine your total estimated tax for the year. Subtract any withholding you expect to have from wages, pensions, or other income. The remaining amount represents what you need to pay through estimated payments. Divide this by four to get your quarterly payment amount. Compare this to your safe harbor requirements based on 2017 tax to confirm you're paying enough to avoid penalties.
Make your payments using one of several methods. You can pay online using IRS Direct Pay (free, directly from your bank account), pay by debit or credit card through approved payment processors (convenience fee applies), use the Electronic Federal Tax Payment System (EFTPS) after enrolling, pay by phone, make cash payments through retail partners (up to $1,000 per day), or mail a check or money order with the payment voucher to the address listed in the form instructions for your state.
When paying by check or money order, complete the payment voucher for each quarter, making it payable to "United States Treasury." Write "2018 Form 1040-ES" and your Social Security number on your check. Don't staple or attach the payment to the voucher—simply enclose both in the envelope.
Common Mistakes and How to Avoid Them
One frequent error is underestimating income or tax liability, particularly in the first year after a major life change like starting self-employment. Review your income and tax situation regularly throughout the year and adjust future estimated payments if circumstances change substantially. The IRS allows you to amend your estimated tax calculations at any time.
Many taxpayers forget about self-employment tax when calculating estimated payments. If you're self-employed, you owe both the employee and employer portions of Social Security and Medicare taxes—15.3% on 92.35% of your net self-employment earnings up to the Social Security wage base ($128,400 for 2018). Use the Self-Employment Tax and Deduction Worksheet included with Form 1040-ES to calculate this correctly and remember to deduct half of your self-employment tax when figuring adjusted gross income.
Missing payment deadlines is costly because the penalty accrues daily on underpayments. Set calendar reminders well before the April, June, September, and January deadlines. Consider paying electronically to ensure timely receipt—the IRS receives electronic payments immediately, while mailed checks depend on postal delivery times. If you choose to mail payments, allow adequate time and note that payments postmarked by the due date are considered timely.
Failing to account for new tax law changes can throw off your calculations. For 2018, this includes reduced tax rates, increased standard deduction, suspended personal exemptions, the $10,000 cap on state and local tax deductions, and the new qualified business income deduction. Carefully work through the What's New section in the form instructions and consider using Publication 505 for detailed guidance.
Some taxpayers incorrectly assume they must make exactly four equal payments. While that's the standard approach, you have flexibility. If your income is seasonal or uneven, you may benefit from using the annualized income installment method, which allows lower or eliminated payments in quarters when you earn less. This requires filing Form 2210 with Schedule AI with your tax return, but can prevent overpaying estimated taxes.
Another mistake involves joint versus separate estimated tax payments. Couples who file jointly can make joint estimated payments, but cannot do so if either spouse is a nonresident alien, they're legally separated, or they have different tax years. If you make joint estimated payments during the year but then file separately, you'll need to allocate those payments between the two returns. The person who made the payment gets credit for it unless both spouses agree to a different allocation.
Forgetting to consider withholding from other income sources leads some people to overpay estimated taxes unnecessarily. If you have wages subject to withholding in addition to self-employment income, you might increase your wage withholding using Form W-4 instead of making separate estimated payments. You can also have voluntary withholding on pensions, annuities, or certain government payments. The total withholding from all sources counts toward your annual tax obligation.
What Happens After You File
Form 1040-ES payments don't generate immediate confirmation responses from the IRS like a tax return does. When you make estimated payments throughout 2018, the IRS applies them to your account. You'll report these payments on your 2018 Form 1040 when you file your annual tax return in early 2019, claiming credit for all estimated payments you made during the year.
If you made sufficient estimated payments totaling at least 90% of your actual 2018 tax or 100% (or 110%) of your 2017 tax, you generally won't owe any underpayment penalty when you file your return. Any difference between what you paid in estimated taxes and your actual tax liability gets resolved on your annual return—you'll either owe additional tax or receive a refund.
If you underpaid your estimated tax, the IRS will calculate an underpayment penalty using Form 2210, which charges interest on the underpayment for each day it remained unpaid. The penalty rate varies quarterly based on the federal short-term rate plus three percentage points. The IRS typically calculates this penalty for you and includes it in your balance due or bills you separately. However, you can calculate it yourself using Form 2210 if you want to see if any exceptions apply or if you used the annualized income method.
The penalty may be waived in certain circumstances, such as casualty, disaster, or other unusual circumstances where it would be inequitable to impose the penalty, or if you retired (after reaching age 62) or became disabled during the tax year or the preceding tax year and your underpayment was due to reasonable cause rather than willful neglect.
When you file your 2018 Form 1040 in 2019, you'll have the option to apply any overpayment toward your 2019 estimated tax instead of receiving it as a refund. Many self-employed individuals use this strategy to automatically start their next year's estimated payments. Just remember that once you elect to apply an overpayment to the next year's estimated tax, you cannot change your mind and request a refund of that amount later.
The IRS will credit your estimated tax payments to your account under the Social Security number shown on the payment voucher. If you made payments under a former name due to marriage or divorce, attach a statement to your tax return explaining this and listing all estimated payments with the names and Social Security numbers used for each payment. Update your name with the Social Security Administration to prevent processing delays.
FAQs
Can I pay all my estimated tax at once instead of making four quarterly payments?
Yes, you can pay your entire estimated tax liability by the April deadline if you prefer. The quarterly payment schedule is designed for convenience, but nothing prevents you from paying the full amount upfront. However, you still need to make sure your total payments meet the safe harbor requirements throughout the year—if you wait too long to pay, you might owe an underpayment penalty even if you eventually pay the full amount.
What should I do if my income changes significantly during the year?
Recalculate your estimated tax using the worksheet and adjust your remaining quarterly payments accordingly. You're not locked into your original estimates. If your income increases substantially, increase your remaining payments to avoid underpayment penalties. If your income drops, you can reduce future payments. For significant income fluctuations, consider using the annualized income installment method, which lets you match payments more closely to when you actually earned the income.
Do I need to make estimated tax payments if I'm an employee but also have self-employment income on the side?
It depends on whether your withholding from wages covers your total tax liability including the side income. Many people find it simpler to increase their Form W-4 withholding from their regular job rather than make separate estimated payments. The IRS Withholding Calculator at IRS.gov/W4App can help you determine if this approach will work. Remember that withholding from wages counts the same as estimated payments for avoiding penalties.
What's the difference between paying estimated tax online versus mailing payment vouchers?
Electronic payment methods like IRS Direct Pay are faster, more secure, don't require postage, and provide immediate confirmation of receipt. You don't need to wait for payments to clear or worry about lost mail. You also don't need payment vouchers when paying electronically. The main advantage of mailing payments is that you don't need internet access or bank account information for electronic transfers. Both methods are equally valid—choose based on your preference and convenience.
If I'm self-employed and expect to owe less than $1,000, do I still need to file estimated taxes?
No, the general rule requires estimated payments only if you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits. If your total tax liability after withholding is less than $1,000, you're not required to make estimated payments, though you're welcome to do so voluntarily to avoid a large payment when you file your return.
How do the 2018 tax changes affect my estimated tax calculations?
The Tax Cuts and Jobs Act made substantial changes for 2018. Tax rates generally decreased, the standard deduction nearly doubled, personal exemptions were suspended, and the state and local tax deduction is capped at $10,000. The child tax credit increased to $2,000 per qualifying child with a higher income phase-out threshold. If you're self-employed, you may qualify for the new 20% qualified business income deduction. These changes mean your 2018 tax won't simply track your 2017 experience—work carefully through the 2018 worksheets and rates rather than just copying last year's amounts.
What happens if I forget to make an estimated payment?
Make the payment as soon as you remember. The underpayment penalty is calculated based on how long the underpayment remained outstanding and how much you underpaid for each period. Missing one quarterly payment doesn't necessarily mean you'll owe a penalty if your other payments and withholding total enough to meet the safe harbor requirements. You might also increase a later payment to make up the shortfall, though the penalty would still apply to the earlier period when the underpayment occurred.
Source: IRS Form 1040-ES (2018)
