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 of Indiana 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 Indiana 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.
If you have income from non-wage sources and need assistance computing your quarterly tax estimate payments, contact your Somerset CPA tax advisor at 317-472-2200 or email us at email@example.com. We will gladly assist you.