Estimated Tax Series Part 1: What are Estimated Taxes?
May 3, 2017
The Indiana income tax system is a “pay-as-you-go” system. Taxes are automatically taken out of our paychecks. However, if you have income from non-wage sources, such as from dividends, interest, farm income, contract work , or rental income, no taxes are withheld. The “pay-as-you-go” requirement still applies.
If you have income not subject to withholding tax, or if you don’t have enough tax withheld from your income, you will need to make estimated tax payments if you think you will owe more than $1,000 to the state when you file your taxes.
Instead of paying taxes throughout the year, estimated payments are made in equal installments due in April, June, September, and January (of the next year.) For someone who estimates owing $1,224 in tax, he will make four estimated tax payments of $306 each. This will pay the tax he owes as the year progresses.
What do you need to pay?
To figure your estimated tax, you are responsible for estimating how much income you are going to earn during the year and then calculating how much tax is due on that amount.
If you receive steady payments each month, such as taxable pension income, you have a good idea how much income you’ll make for the entire year. For example, if you receive $3,000 a month, you’ll get $36,000 for the year ($3,000 each month X 12 months in a year). Multiply $36,000 by the current state tax rate (.0323 for 2017) to find you owe $1,163.
Another example is farm income. It can be challenging to estimate your income when you don’t start seeing those checks come in until the crops and livestock are sold or the rental income comes in. For many, this occurs at the end of the year and trying to make an educated guess ahead of time can be difficult.
How can you estimate your income when you have no clue how your business will do? Maybe you’ve recently retired and don’t know how your tax picture will look.
For these answers and more, check back later this month for “Estimated Taxes Part Two: How much estimated tax do you need to pay?”
- 2017 Annual Report Published
October 16, 2017
Are you interested in learning more about what we do at the Indiana Department of Revenue and what we are planning for the future? Read more...
- Struggling to pay your taxes? Taxpayer Advocate Office (TAO) is here to Help
October 11, 2017
Having troubles paying your taxes? We have the solution, the Taxpayer Advocate Office. Read more...
- Are you following #INDOR on social media?
September 27, 2017
- Tax Tips for Direct Sales Opportunities
September 20, 2017
- What Does the Customer Service Division Do?
September 06, 2017
- Back to School Credits and Deductions
August 23, 2017
- Tax Help for Homeschoolers
August 16, 2017