Filing & Paying QUARTERLY TAXES in the U.S.

[RPCV Cameroon]

Hi all,

I posted this as a reply in another thread, but I thought better of it as that thread hasn't been active for years, and this is an IMPORTANT, confusing topic that I'm sure a LOT of grad students need help with.  Accountants are expensive to use ONCE a year, let alone 4 times a year, and schools refuse to give tax advice.  Let's see if we can't help each other out.

If you're under a fellowship from which NO TAXES ARE WITHHELD, chances are that it is in your best interest to file and pay QUARTERLY ESTIMATED TAXES.   It's confusing and looks like a huge hassle.  

I've seen some people comment in these forums about having done it, or about knowing someone who has done it, so there is knowledge to benefit from here!       

Below are some questions I currently have regarding this process.
______________________________________________________________________________________

 

Can you use Turbo Tax to figure your estimated taxes and quarterly payments?  Has anyone successfully done this using Turbo Tax?  Would you recommend it?

 

I'm planning to make quarterly payments just to be safe, but I'm confused about how it works when you're just starting school.  The following publications make it sound like you figure/estimate your total taxes for the current year AT THE BEGINNING OF THE CURRENT YEAR, then pay them at 4 times during the year (April, June, September, January)...  But what if you don't start school and receive your fellowship/stipend until September?  Will you get dinged for not having made estimated payments in April and June?  

http://www.irs.gov/p...pdf/f1040es.pdf
http://www.irs.gov/B...Estimated-Taxes

Do you need to include deductions when you figure and make your quarterly payments, or can you simply wait and claim all the deductions when you file your annual return the next April?  (I assume you still need to file an annual return, right?...  Speaking of which, is making estimated payments anything like filing the annual tax return?)

Do you have to report the cost of the health insurance provided by the school?

Is there any penalty for overpaying estimated taxes, or for paying if you actually wouldn't have been required to?

And what about receiving extra funding in the middle of the year (i.e., a research or conference grant, summer support)?  Since it could be difficult to predict exactly what support you'll get, should you use the "annualized income installment method"?   From reading the description here   ->  http://www.irs.gov/p...blink1000194572     ...  it *sounds* like this method allows you to figure your estimated taxes at regular intervals throughout the year (based on earnings during the specified period, and, now that I look at it, I think this method does want you to calculate the deductions four times a year as well).   Is that right? 
^ This sounds like a HUGE pain, but - if you use the four-equal-payments method and end up getting an unexpected award - you could end up being penalized for underpaying.  

 

[RPCV Cameroon]

Hmm ... not sure why my links are like that. Here they are again:

 

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estimated-Taxes

 

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

 

http://www.irs.gov/publications/p505/index.html

[whitemocha37]

I currently have to make quarterly tax payments since I work at a foreign embassy and the taxes aren't withheld from my paycheck. I am by no means an expert and the situation might be different for fellowships vs. income but I will try to answer some of your questions:

 

Can you use Turbo Tax to figure your estimated taxes and quarterly payments?  Has anyone successfully done this using Turbo Tax?  Would you recommend it? 

I did not use Turbo Tax to figure my estimated taxes. Last year, I actually just kind of played it by ear and paid as much as I could each quarter (I had a lot of expenses last year so it was a bit tough) but I underpaid and have to make up for  it when I filed by tax return. My tax situation was a bit confusing so when I filed federal taxes I went to a professional instead of using Turbo Tax and they also helped me calculate how much I should be paying. That is, the amount I pay each quarter amounts to ~50% of one month's salary (ex. if you earn $3000 a month, it's safe to pay about $1500 or a little less per quarter). That is only my situation, however, so it might differ when it comes to fellowships

 

But what if you don't start school and receive your fellowship/stipend until September?  Will you get dinged for not having made estimated payments in April and June?  

I highly doubt it. It doesn't make sense for you to have to start paying for income you didn't receive at that time. The way I did it, I paid the first quarter after I started working, so if you don't receive your fellowship until September, I would only worry about estimated taxes starting in September. Basically, the first payment you make should be on Sept. 15

 

Do you need to include deductions when you figure and make your quarterly payments, or can you simply wait and claim all the deductions when you file your annual return the next April?  (I assume you still need to file an annual return, right?...  Speaking of which, is making estimated payments anything like filing the annual tax return?)

Deductions should be made when you file your annual return, which you DO need to still file. Making estimate payments is much easier than filing the return. I did it online through the IRS Direct Pay system because it was the easiest and fastest way. You just fill out your personal and checking account info, choose 'Estimated Taxes' in the section that asks what you're paying for, and click submit. It takes less than 10 minutes and you don't even have to print anything out, although you can certainly print out the estimated tax vouchers from the IRS website and mail in the payments if you want to. 

 

Do you have to report the cost of the health insurance provided by the school?

When you file annual taxes, they will ask you if you have health insurance, and if you answer yes, I think that's the end of it. Definitely don't need this info when making est. payments

 

Is there any penalty for overpaying estimated taxes, or for paying if you actually wouldn't have been required to?

Not 100% sure, but I doubt IRS would penalize you for paying more than you owe. I assume that if you overpay you will just get the money back as a tax refund in April, but you can always double check. 

 

And what about receiving extra funding in the middle of the year (i.e., a research or conference grant, summer support)?  Since it could be difficult to predict exactly what support you'll get, should you use the "annualized income installment method"?

No idea about this one, but if I were you, I wouldn't worry about it until I actually receive the funding, in which case check with the people/organization allocating it and see if they have any insight into how to report it.

 

Hope that helps! 

Edited April 1, 2015 by whitemocha37

[Horb]

Hi! I looked up quarterly taxes before. I can't find the link, but I remembered reading that for fellowships, if they start in September, you don't pay the quarterly for then until January 15th. You need to have actually had the fellowship for a quarter of the year to pay taxes on it. 

 

Also, there is only a penalty if you don't pay quarterly taxes. I don't fully understand why, at the end of the year, I can't just pay what I owe, but that isn't really important. Additionally, if you work another job (part time), you might not need to pay quarterly taxes if you make a certain amount (the taxes you paid from this part time job MAY clear what you would owe for the quarterly taxes). Thus, if you owed X amount for quarterly taxes, but you over pay taxes for your part time job (and thus would have gotten a tax return), you may just break even. But this requires a lot of math. 

[RPCV Cameroon]

This is helpful, guys!  Thanks!

One more question, just to be safe: the January 15th payment due date is actually for taxes owed from the PRIOR year, right?  

 

Example:

Let's say I estimate owing $100 in 2015 (for the sake of simplicity).  I should have figured out this estimate at the beginning of 2015 (right?).  In order to cover what I owe for 2015, I pay:

$25 on 4/15/15

$25 on 6/15/15

$25 on 9/15/15

$25 on 1/15/16

Before 4/15/16, I file my annual return, and I indicate on there somewhere that I paid $100 in estimated taxes for 2015.  At this time, I claim any deductions I want to take.

Then, at the beginning of 2016, I estimate what I'll owe for 2016.  Repeat.

... Right?

 

Speaking of which, I believe mandatory school fees can be claimed as deductions, but I'm confused as to whether you list them as deductions or just don't include them in your income.  I'm confused about this because "the portion of the scholarship/fellowship used for mandatory fees and materials" is said to be an untaxable portion of the scholarship/fellowship   --->   

http://www.irs.gov/taxtopics/tc421.html

Edited April 4, 2015 by RPCV Cameroon

[RPCV Cameroon]

Oh also, for the payment due on 4/15, do I pay that as part of filing my annual return, or do I use whatever method I used to pay the amounts due on the other 3 due dates?

[Horb]

So from my understanding when I looked it up, if you started school in September of 2015 and were paid in September, the first installment of quarterly taxes would be January 15th of 2016. I think the logic is that they would not want you paying taxes on money you haven't received yet.