You normally make estimated tax payments four times a year. Many US expatriates may find that they are subject to the estimated tax underpayment penalty even if they pay all of their taxes by the April due date. This is because US taxes are required to be collected on a pay-as-you-earn system.
Most salaried individuals living in the US manage to avoid this problem because they have taxes withheld from their paycheck by their employer. Expats who expect to owe tax should consider making estimated tax payments throughout the course of the year in order to approximate this withholding. Remember that US expats who are self-employed will typically have a tax liability (self-employment tax) even if their income is below the federal income tax threshold and the foreign earned income exclusion amount.
Estimated taxes can be made online, by phone, or by mail (check out https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes for detailed instructions) and should be paid in equal quarterly installments.
How much should one pay? Most taxpayers can avoid the underpayment penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax show on their return for the prior year, whichever is smaller.
To illustrate, if a taxpayer owed 2000 dollars in tax for the 2017 tax year, he/she could avoid the underpayment penalty for 2018 by paying 500 dollars as estimated tax for each quarter of the 2018 tax year.
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