The U.S. Tax System is a “pay-as-you-go” system. As you receive taxable income throughout the year, you are expected to pay taxes throughout the year.
Employers withhold taxes from wages on each paycheck and remit those taxes for the employee to the IRS and state taxing authorities. However, many types of taxable payments do not have taxes withheld, including most stipend payments. For stipend payments that have no withholding, you may need to make estimated tax payments to the IRS. Some states, including Missouri, also require estimated tax payments.
You must make estimated tax payments to the IRS if you expect your federal income tax liability to be more than $1,000. In addition you must make estimated tax payments to the Missouri Department of Revenue if you expect your Missouri income tax liability to be more than $100. Note: If you are a nonresident alien for US tax purposes, you do not have to make estimated tax payments to the IRS; however, you may be required to make estimated tax payments to the State of Missouri.
Estimated payments, when required, are due quarterly on April 15th, June 15th, September 15th, and January 15th of the following year. Even if you overpay your taxes and get a refund when you file, if you did not make an estimated tax payment on time or you underpaid on one of the due dates, you may incur penalties and interest on the late or underpayment. Penalties and interest are accrued daily. So if you can’t make a payment on time, make it as soon as possible!
In order to not incur penalties and interest for underpayment of taxes throughout the year, for both Federal and Missouri, you must pay the lesser of (1) 90% of your current year expected income tax liability or (2) 100% of your prior year actual income tax liability.
In order to calculate whether and how much you need to pay use the following forms:
- IRS Form 1040-ES (available at irs.gov)
- Complete the Estimated Tax Worksheet
Note: Keep in mind that what you are doing on this worksheet is estimating your total current tax year liability. You are not simply calculating the tax owed on your stipend income.
- Line 1 should include all of your expected income for the current calendar year. Include all taxable income you have received up to the date of the calculation and all taxable income you expect to receive in the remainder of the current year. If you are married filing a joint return, you must include your spouse’s income as well.
- On line 2, you may use the standard deduction amount (provided for the current year in the instructions of Form 1040-ES) or you may estimate your expected itemized deduction for the current year.
- Line 4 allows for an exemption for yourself (provided that you cannot be claimed as a dependent on someone else’s return), your spouse, and dependent members of your household. The amount allowed for the current year is provided in the Form 1040-ES instructions.
- On line 6, you must enter the expected tax liability. Use the rate schedules included in the 1040-ES instructions.
- Line 13c is your estimated tax for the entire current calendar year.
- Lines 14a and 14b are where you determine which is smaller, 90% of your current year expected liability or 100% of your prior year actual liability.
- On line 15, enter all federal income tax that has already been withheld in the current year. If you will continue to receive any payments that are subject to withholding, also estimate and enter the amount to be withheld in the remainder of the year. If you are married filing a joint return, enter your spouse’s federal income tax withholding to date as well as expected withholding for the remainder of the current year.
- Follow the instructions on lines 16a and 16b to determine whether you need to make estimated tax payments.
- If required to make estimated payments, enter the amount on line 16a divided by the number of estimated tax payment due dates remaining for the current year.
Missouri Estimated Tax Payments
- Missouri Form MO-1040ES (available at dor.mo.gov)
- The Missouri estimated tax calculation is similar to the IRS federal tax calculation.
- The starting point for the Missouri estimated tax calculation is the federal income amount determined on IRS Form 1040-ES.
- You must complete the federal Form 1040-ES before completing the Missouri Form MO-1040ES.
- If you are a nonresident alien for tax purposes, you must complete lines 1 – 6 of the IRS Form 1040-ES in order to complete the Missouri Form MO-1040ES.
- If you lived and/or received income in Missouri for only a partial year, use Missouri Form NRI to calculate the percentage of your income that is allocable to Missouri. This form is available at (available at dor.mo.gov). To determine your estimated Missouri tax for the current year, on the Form MO-1040ES worksheet, multiply the estimated tax that you have calculated for you (and your spouse, if applicable) on line 12 by the percentages determined on the MO Form NRI.
Special Notes
Remember that calculating estimated tax payments is based on estimates, amounts that you are aware of at the time that you do the calculation. If your financial circumstance changes significantly during the calendar year, you may need to recalculate your expected tax liability and estimated tax payments.
Estimated tax payment calculations are done on a tax year basis. If you expect to receive a taxable stipend over an academic year, you will need to calculate whether estimated tax payments will be required for the calendar year in which you begin your fellowship as well as the next calendar year.