Payment of Estimated Tax: Married Couple

[gregger]

Happy New Year. My 2024 was interesting: I retired in June, turned 65 in August, started on Medicare, and then promptly received a freelance gig. My fee is to be collected in three one-third payouts: last September, this month (January) and finally March.

Question 1: Should I go ahead and make an estimated tax payment Jan 15. on that first third of consulting income, or should I just let it ride and hope total withholding for the year covered it? (This "first third" installment is only about 10% of my 2024 total income.)

Question 2: My wife has a part-time job and is paid as a 1099. It's not much money, but she does pay quarterly Estimated Tax. We file jointly every year. Going forward, should we pay a single quarterly Estimated Tax Payment? My wife wants to just keep doing her own payments based on her own estimates. Can we just mail in separate 1040 ES vouchers?

Question 3: Regarding the freelance project, it's a seasonal gig and I'm hoping will repeat annually. I haven't set up an LLC nor do I feel the urge. Nonetheless, do I owe self-employment tax, and if so, do I have to estimate and pre-pay it starting now, in addition to the income tax? (Sorry for my ignorance. I was always a salary guy, and when I did a little freelance work here or there, the tax liability was easily covered by withheld taxes on my day job. That could even be the case for 2024, as 90% of my income was with my former employer.)

Thanks for any advice.

[Eagle33]

Question 2: My wife has a part-time job and is paid as a 1099. It's not much money, but she does pay quarterly Estimated Tax. We file jointly every year. Going forward, should we pay a single quarterly Estimated Tax Payment? My wife wants to just keep doing her own payments based on her own estimates. Can we just mail in separate 1040 ES vouchers?

Per the IRS webpage https://www.irs.gov/payments/frequency-limit-table-by-type-of-tax-payment

Tax form / Payment type and tax year / Limit
Form 1040-ES / Estimated Tax / 2 per quarter

[boomer_techie]

Per the IRS webpage https://www.irs.gov/payments/frequency-limit-table-by-type-of-tax-payment

Tax form / Payment type and tax year / Limit
Form 1040-ES / Estimated Tax / 2 per quarter

That table seems to apply only to debit/credit card payments and to cash (via retail partner) payments. Notably, it doesn't apply to physical checks nor Direct Pay debits from a bank account.

[Asyouwish]

Question 2: My wife has a part-time job and is paid as a 1099. It's not much money, but she does pay quarterly Estimated Tax. We file jointly every year. Going forward, should we pay a single quarterly Estimated Tax Payment? My wife wants to just keep doing her own payments based on her own estimates. Can we just mail in separate 1040 ES vouchers?

One payment is fine. On a joint return it’s all added together. Total income and total tax. However, you each will have your own Schedule SE which provides the breakdown of SE tax by SSN so Social Security gets the credit recorded individually. But the payments, like withholding, are lumped together. There are no separate his/her lines on the tax return for payments.

All payments should be made under the primary SSN. This is important.

[gregger]

Thanks all for the answers to Q2!

Anyone have thoughts on Q1? (I should have learned years ago to never post more than one question in a post )

Perhaps I should re-run the Estimated Tax calculator for 2024 in TurboTax and see how badly off we are, what with the September paycheck dumping new income into the total fairly late in the "prepayment" series.

We're so incompetent at this, we get dinged with underpayment penalties more years than not, it seems.

[gregger]

[This was an accidental duplicate of my latest Reply.]

[WeakOldGuy]

Happy New Year. My 2024 was interesting: I retired in June, turned 65 in August, started on Medicare, and then promptly received a freelance gig. My fee is to be collected in three one-third payouts: last September, this month (January) and finally March.

Question 2: My wife has a part-time job and is paid as a 1099. It's not much money, but she does pay quarterly Estimated Tax. We file jointly every year. Going forward, should we pay a single quarterly Estimated Tax Payment? My wife wants to just keep doing her own payments based on her own estimates. Can we just mail in separate 1040 ES vouchers?

If you are MFJ, it doesn't really matter. Your wife doesn't have "her payments". They are all your joint payments. If you or she screw up your estimates, you both are on the hook. I would figure it out jointly and just make a single payment each quarter. I never have mailed in my estimated tax payments but have always used EFTPS online to schedule and make payments. Much easier IMO.

[lstone19]

Question 2: My wife has a part-time job and is paid as a 1099. It's not much money, but she does pay quarterly Estimated Tax. We file jointly every year. Going forward, should we pay a single quarterly Estimated Tax Payment? My wife wants to just keep doing her own payments based on her own estimates. Can we just mail in separate 1040 ES vouchers?

Estimated payments are merely payments to your tax account. They are never FOR any particular income. There is nothing to be gained by making separate payments. Separate payments will be an unnecessary complication.

[WeakOldGuy]

Thanks all for the answers to Q2!

Anyone have thoughts on Q1? (I should have learned years ago to never post more than one question in a post )

Perhaps I should re-run the Estimated Tax calculator for 2024 in TurboTax and see how badly off we are, what with the September paycheck dumping new income into the total fairly late in the "prepayment" series.

We're so incompetent at this, we get dinged with underpayment penalties more years than not, it seems.

You definitely need to do an estimate of your 2024 tax and then compare that to your total withholding and estimated payments in 2024. If the payments made don't reach the safe-harbor amount, then you need to make an estimated payment before the 15th.

[lstone19]

Thanks all for the answers to Q2!

Anyone have thoughts on Q1? (I should have learned years ago to never post more than one question in a post )

Perhaps I should re-run the Estimated Tax calculator for 2024 in TurboTax and see how badly off we are, what with the September paycheck dumping new income into the total fairly late in the "prepayment" series.

We're so incompetent at this, we get dinged with underpayment penalties more years than not, it seems.

Your required annual payment is the lower of 100% (110% if last year's AGI was over $150K) of last year's tax and 90% of this year's tax. The former is a known number you can pull off last year's tax return.

Since you said the freelance money is about 10% of your income for the year and assuming there was withholding on the other 90%, you are likely to be around that 90% of this year's tax if you your withholding was appropriate for the income. In fact, since you retired in June, if withholding on your income was at the proper rate as if that income would continue for the full year, then you may have been overwithheld in which case you're likely more than good. But the only way to know for sure is to do a quick estimate. It doesn't need to be super precise - take your income, subtract the standard deduction, look up what the tax is on that, and you pretty much have a worst case number (things like qualified dividends and capital gains will reduce that number but not make it larger).

[gregger]

Thank you everyone for the advice.

Acting on that, I fired up TurboTax 2023, made a copy of my return and called it "2024 Tax Estimate," then ran the tax estimate process again, plugging in my best-available 2024 numbers as well as tax already withheld/paid. (I had the 2024 W-2's and 1099's already, and by using Empower/Personal Capital's dashboard, I was able to pull all the income totals for our brokerage and savings accounts.)

Based on all this, TurboTax indicated my estimated 2024 tax was already covered. (I used both the "100% of 2023 Tax" as well as the new "2024 Estimated Tax" methods; same result.) Allowing however for stray LTCG distributions from mutual funds I didn't immediately see and anything I else may have forgotten, I'm nonetheless going to drop a check for an additional 5% of the estimated tax to the IRS. Worst case is that I get it back in a few months without interest.

[trueblueky]

Question 3: Regarding the freelance project, it's a seasonal gig and I'm hoping will repeat annually. I haven't set up an LLC nor do I feel the urge. Nonetheless, do I owe self-employment tax, and if so, do I have to estimate and pre-pay it starting now, in addition to the income tax?

Yes, you owe self-employment tax. Complete a Schedule C to figure net income from the gig. Schedule SE computes the tax.

You get part of this back in places. Half the SE tax is subtracted from income on Schedule 1. And the income likely is Qualified Business Income (QBI) on line 13 of 1040.

As others noted, tax is tax. It all gets reconciled when you file.

[tomd37]

OP,
Whenever either of you are sending in estimated tax payments be sure that they are going in under the name and SSN of the first person, called the taxpayer on the return, listed on the previous years tax return. That is to say that if you are listed first on the tax return the estimated payment should be submitted under your SSN so that the IRS can attach that payment to your upcoming tax return for the year in question. Nothing confuses the IRS more than an estimated tax payment made under the SSN of the second person listed on the tax return!

[gregger]

Nothing confuses the IRS more than an estimated tax payment made under the SSN of the second person listed on the tax return!

Thanks for this. My wife has been making the 1040-ES payments by logging into her IRS account, which identifies her as part of a "married filing jointly" pair. So all appears to be good.

[gregger]

You get part of this back in places. Half the SE tax is subtracted from income on Schedule 1. And the income likely is Qualified Business Income (QBI) on line 13 of 1040.

Thanks for the added information. I will be interested to confirm all this on our 1040 in TurboTax before submitting.

[martint]

OP,
Whenever either of you are sending in estimated tax payments be sure that they are going in under the name and SSN of the first person, called the taxpayer on the return, listed on the previous years tax return. That is to say that if you are listed first on the tax return the estimated payment should be submitted under your SSN so that the IRS can attach that payment to your upcoming tax return for the year in question. Nothing confuses the IRS more than an estimated tax payment made under the SSN of the second person listed on the tax return!

What bad things happen if the non-primary spouse makes the payment? With 2 spouses it’s technically possible to make 4 credit card payments per quarter.

[martint]

OP,
Whenever either of you are sending in estimated tax payments be sure that they are going in under the name and SSN of the first person, called the taxpayer on the return, listed on the previous years tax return. That is to say that if you are listed first on the tax return the estimated payment should be submitted under your SSN so that the IRS can attach that payment to your upcoming tax return for the year in question. Nothing confuses the IRS more than an estimated tax payment made under the SSN of the second person listed on the tax return!

What bad things happen if the non-primary spouse makes the payment? With 2 spouses it’s technically possible to make 4 credit card payments per quarter.

[Big Dog]

for Q1, if a tax payment will be due on April 15, why would you not send it 90 days earlier for piece of mind (to avoid possible interest due for late withholding)? (Unless the amount is thousands of dollars.)