Clergy Estimated Tax Payments

The US tax system is a quarterly system, not an annual one. Tax payments are due at least quarterly, and the year-end return is simply a reconciliation of the activity. If you receive income in the first quarter of the year, the taxes are due at the end of that quarter, not in April of the following year when you file your tax return.

The year is divided into four payment periods, or due dates, for estimated tax purposes. Those dates are listed below.

  • Payment 1 – April 18
  • Payment 2 – June 15
  • Payment 3 – September 15
  • Payment 4 – January 17

Most secular employees have taxes withheld from their paychecks on a bi-weekly basis so they exceed the quarterly requirement. However, if you are classified as clergy and received ministry income or other sources of income such as interest, dividends, Partnership or S Corp draws or dividends, sole proprietorship or LLC income, or a profitable rental property or secular business income, then estimated taxes may very well be required.

 The IRS requires that you must pay estimated taxes if you will owe $1,000 or more by year end, and if your total taxes withheld from other sources are less than the smaller of 90 percent of your return, or 100 percent of your previous years tax liability.

If you choose to wait until 2014, or even 2nd or 3rd quarter, to see if you owe additional taxes, you may be subject to interest and penalties.

Once you figure out that you need to make estimated payments, you need to get federal estimated tax payment coupons and state, if applicable. On the 15th following each quarter end, you should write a check for your amount due and include the form name, your SSN, and the quarter in the memo of your check (i.e. Form 1040-ES 123-45-6789, 1st Quarter) and mail to the tax agency along with the coupon.2013 Estimated Tax Payment Instructions


Six Tips for Paying Estimated Taxes 

Estimated tax is a method used to pay tax on income that is not subject to withholding.  Most clergy are exempt from tax withholdings and FICA. You must pay estimated taxes during the year based on your ministry income.
These five tips from Clergy Financial Resources will provide you with a quick look at estimated taxes and how to pay them.

  1. If you have income from sources such as ministry income, honoraria, business income, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, then you may have to pay estimated tax.
  2. As a general rule, you must pay estimated taxes if both of these statements apply: 1) You expect to owe at least $1,000 in tax after subtracting your tax withholding (if you have any) and credits, and 2) You expect your withholding and credits to be less than the smaller of 90% of your taxes or 100% of the tax on your 2010 return.
  3. To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions and credits for the year. You want to be as accurate as possible to avoid penalties. Also, consider changes in your situation and recent tax law changes.
  4. Estimated Tax for Individuals, provides all you’ll need to pay estimated taxes. This includes instructions, worksheets, schedules and payment vouchers. The easiest way to pay estimated taxes, however, is electronically through the Electronic Federal Tax Payment System or EFTPS. You can also pay estimated taxes by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

    Estimated Tax Payments Instruction and Vouchers

  5. The last installment (January 15th) can be postponed if the taxpayer files and pays the total tax liability on his/her return by January 31st.
  6. You must attach form 1040-ES with each estimate payment so as to identify your name and social security number when you send money to your Internal Revenue office. The payments may be made by personal check or money order. Remember to write your social security number on your check. Generally, Cash is never used. If the due date falls on Saturday, Sunday, or a legal holiday, there is an automatic extension of time allowed, which is to the next business day.