Most people pay income tax when employers withhold it from their paychecks. But if you receive income that isn’t subject to withholding, you’re still responsible to pay Minnesota income tax regularly. You may need to make quarterly “estimated tax” payments on that income during the year.
Examples of such income include: earnings from self-employment, pensions, unemployment compensation, interest or dividends, rents, alimony, gains from the sale of assets, and prizes and awards.
Note: If you make estimated payments, be sure to claim them as part of “total payments” when you file your Minnesota tax return on Form M1, Individual Income Tax. This includes any refund or overpayment from last year that you chose to apply to this year’s estimated tax.
Who Must Make Estimated Tax Payments
Generally, you must make estimated tax payments if both of the following apply:
- You expect to owe at least $500 in Minnesota income tax (not including your withholding or refundable credits); and
- You expect your combined withholding and refundable credits to be less than either of the following:
- 90 percent of your Minnesota tax liability for the current year; or
- 100 percent of your Minnesota tax liability for the previous year (or 110 percent if your adjusted gross income was $150,000).
This is known as the “safe harbor rule”: If you pay at least one of these amounts in Minnesota income tax during the year, you won’t be charged interest on any tax you still owe as of Dec. 31. If your withholding and credits total less than either of the “safe harbor” amounts, you need to make estimated tax payments to cover the difference and avoid interest charges.
“Tax liability” is defined as the amount you owe after subtracting nonrefundable credits from your total tax (as calculated in the Minnesota tax tables).
Exception: Even if you meet the above requirements you don’t have to make estimated tax payments if you had no tax liability last year, you were a Minnesota resident for the entire year and your prior year tax return covered a 12-month period. For more information, view the statute, M.S. 289A.25, subd. 6.
Part-year residents or nonresidents: The “safe harbor” rule applies as long as your Minnesota tax liability was at least $1 in the previous year. Your adjusted gross income that’s assignable to Minnesota is used to determine if you meet or exceed the $150,000 threshold.
Married taxpayers: If changing your filing status for the current year, use one of the following ways to calculate your previous year’s tax liability:
- If you filed separately last year, but will file a joint return this year, combine the tax liabilities shown on your separate returns.
- If you filed jointly last year but will file separate returns this year, each spouse should multiply the tax liability on your joint return by the following fraction:
the tax liability that you would have paid, if you had filed separate returns
the total tax liability you both would have paid, if you had filed separately
If you and your spouse make joint estimated tax payments during the year and then file separate returns, the two of you must decide how to divide the payments. If you can’t agree, the payments must be divided proportionally, based on the tax amounts on your returns. For more information, see Minnesota Rules 8093.0200.
When to Make Estimated Tax Payments
Estimated tax payments are due four times a year, as shown in the table below.
|Jan. 1 through March 31
|April 1 through May 31
|June 1 through Aug. 31
|Sept. 1 through Dec. 31
||Jan. 15 (of the following year)|
If you don’t pay enough estimated tax by the due date for each quarter, you are subject to a penalty (even if you are due a refund). For more information, see Underpayment Penalty for Estimated Tax below.
If the due date is on a weekend or legal holiday, your payment is due on the next business day.
January payment: If you file and pay your annual return by Jan. 31, you may skip the Jan. 15 installment without penalty.
Change in estimated tax: After making your first estimated tax payment of the year, you may have to refigure the amount for remaining payments due to changes in your income, deductions, credits or exemptions. If needed, increase your payment amount to avoid a penalty.
If you have a large income increase during the last two quarters of the year, you may have to complete the Annualized Income Installment worksheet on the back of Schedule M15, Underpayment of Estimated Income Tax.
Farmers and commercial fishermen: If at least two-thirds of your income last year came from farming or fishing – or is expected to for the current year – only one estimated tax payment is required: on Jan. 15. This payment must be at least one of the following:
- 100 percent of your tax liability last year; or
- 66.7 percent of your liability for the current year.
If you prefer, you may skip the Jan. 15 payment due date without penalty if you file your return and pay your tax in full by March 1.
How to Calculate Estimated Tax Payments
First, estimate your income for federal tax purposes for the current year using federal Form 1040ES. Then, use the prior year’s Form M1and instructions as a worksheet to estimate your Minnesota tax liability for the current year. Use the current year tax rates (rather than the prior year tax tables) for a more accurate estimate.
After estimating your Minnesota tax, divide what you owe by four to get your quarterly payment. If you prefer, you may pay the entire amount due in one installment (due April 15).
Example: Last year Jack and Jamie owed $2,500 in Minnesota income tax. Jack estimates they will owe $2000 for this year. Jack has no withholding, but he estimates that Jamie will have $600 in Minnesota withholding. The table below shows how Jack calculates their required payment:
|100 percent of last year’s liability
|Lesser of the above
|Required annual payment
|Amount of each installment (1,200 ÷ 4)
How to Pay Estimated Tax
You may pay your estimated tax online or by phone using our e-Services system, by credit card or by check. For more information, see Payment Options.
Note: When paying by check, you must include Voucher M14, Individual Estimated Tax Payment. Make your check payable to Minnesota Revenue and include the last four digits of your Social Security number in the memo line.
Underpayment Penalty for Estimated Tax
If you underpay or don’t pay your estimated tax as required by the due date(s) during the year, you’re subject to a penalty.
To determine the amount of your penalty, complete Schedule M15, Underpayment of Estimated Income Tax. Enclose Schedule M15 when you file your return.
Note: You don’t have to complete Schedule M15 (or pay a penalty) if either of the following apply:
- You aren’t required to make estimated payments because you qualify for an exception, or because at the end of the tax year you don’t meet the requirements based on your final tax liability, payments, withholding and credits. (See “Who Must Make Estimated Payments.”)
- The IRS doesn’t require you to pay a penalty for underestimating your federal tax. Include a copy of the federal request when you file your Minnesota return.