Speaker: Chanel Lyon, ASFP, from Jackson Hewitt Tax Services.
Slides from the talk: Estimated Taxes Seminar 2020
Basics of how to calculate taxes:
First, know your sources of income. Taxable income depends on sources of income. Most sources of income are taxed the same. Talk to your personal tax preparer for this, because every situation is different.
Next, choose a state of residency, if your income came from multiple states.
Calculate each state’s tax liability as if all income were from it, then apply each state’s income proportions. Example: 30% of your income came from CA, and CA tax liability is $10,000 for your tax bracket, your specific CA liability is $3,000. Determine tax liability for each state this way.
Note: IL residents and spouses that work in IL can apply MO income tax to their IL tax credit.
Note 2: Foreign students, most tax rules apply to you too. Similar rules apply to multi-country taxes like multi-state. Foreign sources of income, foreign grants, are generally taxed. Lots of variables exist, including resident/non-resident status as well as your visa type, tax treaties specific to countries. For more information, stay tuned for SAC international tax seminar!
What is estimated tax, and why?
Estimated taxes aren’t some special taxes on top of ‘normal taxes.’ They ARE your regular taxes. If you were an employee, you get your taxes withheld (paid to city, state, and federal governments) every paycheck automatically, which is why you would get a W-2 form in January to prove how much taxes you already paid this way. This also helps calculate your tax returns (aka what you may have overpaid or underpaid). As students, we get paid by stipend, and this type of income doesn’t get tax withholdings (thus no W-2). That’s why we have to pay estimated taxes quarterly.
Whether you are an employee receiving W-2 or a stipend recipient paying estimated taxes, state and federal tax returns are filed each year by April 15. This is to declare your full income for the year and the actual (as opposed to estimated) tax liability. This will settle any remaining taxes you might owe, or refund for any taxes you overpaid.
April 15: Tax liability date = this means deadline for all of your taxes and refunds.
Estimated tax deadlines:
Income paid between Jan. 1 and Mar 31 -> due April 15 (first deadline of the given fiscal year), likewise for June 15, September 15, and Jan 15.
Penalty due is calculated after January 15 deadline. $0.041 per day (?)
We pay taxes to three governments: Federal, Missouri state, and St. Louis City.
- Federal estimated tax:
Form 1040-ES is for federal estimated tax (from irs.gov). Read all of the document and fill out your numbers. It includes an estimated tax worksheet. Chanel goes through it briefly in the video.
You have to pay 90% of taxes before Jan 15 deadline. You usually don’t have to pay estimated taxes your first year, as long as the amount you owe would be less than $1,000 AND less than 10% of all taxes you owe that year. Because you won’t know for sure, she highly recommends paying some anyway.
Once you know how much to pay your federal government each quarter, there are three ways to pay federal estimated taxes:
- Pay by mail: check or money order. Include the quarterly voucher included in the 1040-ES form (near the end of the doc).
- Online payment: Go to IRS website, click “Make a payment”, and choose an option under “Pay your taxes now.”
- In person: Go to the IRS office (one located in St. Louis) and pay in cash.
Tip: It is highly recommended to create an account with the IRS. This allows you to view your tax transcripts online and print them for your convenience – May come in handy for home purchases etc.
- State estimated tax (Missouri in this case):
MO-1040-ES is for Missouri estimated tax. Same deal, read the doc and calculate your quarterly estimated tax. Chanel also goes through this in the video.
There is an online portal for payments: https://dor.mo.gov/personal/payonline.php.
- Louis City Earnings Tax: Unlike Federal and state governments, St. Louis City doesn’t take quarterly estimated taxes. You only pay it once a year, due April 15.
Form E-1 is easy to follow (https://www.stlouis-mo.gov/collector/earnings-tax-forms-info.cfm)
- Louis City Resident owes 1% of all income (aka stipend amount from your stipend letter in January plus other types of income if applicable).
- Non-resident (if you live in St. Lous County or others) owes 1% of all income earned in the city.
Chanel goes through the E-1 form briefly in the video. (Since DBBS students don’t get W2, you get no withholdings)
Include a copy of your stipend letter when you send your completed E-1 and tax payment. (You will receive a stipend letter in January 2021 for the total stipend you received in year 2020. This can be found in your HRMS.)
Q&A (things not already covered above):
- Is there a different form for people living in St. Louis County?
- Yes, you can use E-1R but either E1 or E1R is fine. different form for city income tax for ppl living in St. Louis County.
- What if we worked in another state and will not receive our W-2’s until after the January deadline?
- It won’t impact your estimated taxes because it would fall to your next, April 15 deadline.
- What happens if I have a stock portfolio? Can I just do/pay the tax from investments/trading in 2020 by April 15, 2021, or do I have to pay these taxes every quarter too? How much do I have to make on investments/trading in order for this to be taxable?
- If you make 50 cents or more on your investments or trades, that is taxable income, should be included in your tax return. Include this when you calculate your estimated taxes. 90% of all your tax liability is due Jan 15, and everything else up to 100% is due April 15. You will likely need to file a schedule for investments depending on how much you made out of your investments/stock portfolio. Definitely take this information to your tax preparer, whether you earned or lost money.
- If we kept our residency in another state, do we have to fill out our residency state 1040 ES instead of the MO one?
- Yes, but we recommend having your residency moved to MO, because the taxes you owe to MO may not necessarily be credited to your home state income tax. It is for IL, though.
- Does WashU stipend income count as St Louis city earned income that those of us living in the County must pay?
- You still have to pay because it is income from St. Louis.
- What is the penalty for missing city tax payment?
- It is detailed in the E-1 form. You pay extra depending on the number of days past the April 15 deadline.
- So for this year (fiscal year 2020), due day is April 15, 2021?
- Correct, that is the due date for your total taxes from 2020.
- As a first-year student, do we need to start paying these estimated tax payments by April 2021 or January 2021?
- As a first time student, your first estimated payment will be April 15, for the income you made from Jan.1 through Mar.31. You will need to make sure you have enough money set aside.