2018 1040ES safe harbor

[fanefamily5]

My college aged child receive a scholarship paying for education and works during the summer.  The software recommends to make 2018 1040es payments.  The income shows up in lump sums at semester beginning and some during the summer.  Are 2018 estimated tax payments necessary, or is there a "safe harbor" class that applies?

[IsabellaG · Accepted solution]

If your child will wind up with a balance due of $1000 or more, they will be subject to an penalty for not paying in enough tax, the Estimated Tax Penalty. The "safe harbor" that will eliminate this penalty for 2018 would be:

• They owe less than $1000, or
• They've paid in at least 90% of their 2018 tax, or
• They've paid in at least 100% of their 2017 tax. This is the safest route to take, because it's a known number. 

You can arrange it so that the quarterly estimated taxes are paid to reflect the fact that the income is received at the beginning of the semester and during the summer, because if you receive income unevenly during the year, the expected estimated tax is adjusted accordingly.

Alternatively, they could have additional tax withheld from the summer job through their W-4 form.

See this link for more information, and IRS Publication 505, which currently applies to 2017, but will be updated to reflect 2018 tax rates.