How do you calculate your tax installment payment?

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Tax installments got you scratching your brain?

Let us help! Tax installments are pre-payments made to the CRA on certain dates so that you can avoid paying a large tax bill on April 30th.

If at any point you are projected to owe or have owed a net tax of $3,000 or more in any given year ($1,800 for residents of Quebec) it likely that you will receive an installment reminder from the CRA that requests you prepay a set amount of your income tax by installments. This can occur if no taxes or not enough taxes are deducted from your income during a given year. While this is common for those with self-employment and rental income, income from some pension plans, investments and second jobs may also be subject to installment tax payments.

 

How do you calculate your installment payment?

Here are three ways to calculate your installment payments:

  • No-calculation option: Recommended for individuals whose income, deductions and credits stay about the same from year to year.
    • Canada Revenue Agency (CRA) will determine the amount of your installment based on your latest assessed tax return
    • CRA will send you a reminder
  • Prior-year option: This is the best option if your current year’s income, deductions, and credits are similar to the prior year’s amount but WAY different from those  2 years prior.
  • Current-year option: This is the best option if your previous year’s income, deductions, and credits are SUPER different from the two years prior.
    • You determine amount of your installment payments based on your estimated net tax owing for the current year, CPP contributions payable and EI premiums. Use the Calculation chart for installment payments for 2018 to calculate your total installment amount due.

Here’s an important tip from CRA:

When do you have to pay your installments?

If you are required to pay installments, the CRA needs to receive your installments BEFORE December 31 of the current year. 

Here are suggested dates to pay your tax installments:

  • March 15
  • June 15
  • September 15
  • December 15

Whether you pay in a one lump sum or make monthly installments, as long as you pay your full installments before December 31 you will avoid installment interest. 

If you received an installment reminder and missed your March 15, payment do not panic. Just make sure you make it up before the end of the year.

Tax Installment Series: Paying your income tax by installments

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Tax installments never looked cuter…

Whether you spell it “instalment” or “installment”, it comes down to this: If you have ever been hit with a large tax bill on April 30th, you’ve probably considered changing your plans the following year and making either regular or occasional installment payments, to avoid the same shock happening the following year.

As part of our new blog series, we will look at paying your net tax owing by installments and answer these two common questions such as:

  • what items to consider when deciding if you have to pay by tax installments and why you should pay by tax installments
  • when do you have to pay your 2018 installments and how to calculate your installment payment

Get ready for cool and informative weekly posts on one of our most asked questions, especially during tax time. Amazing conversation starter alert.