Estimated tax payments
The IRS has seen an increase in the number of taxpayers who are subject to estimated tax penalties, which apply when someone underpays their taxes. The penalty amount varies but can be several hundred dollars. This is why the IRS urges taxpayers to check into their options to avoid these penalties. Adjusting withholding on their paychecks or the amount of their estimated tax payments can help prevent penalties. This is especially important for people in the gig economy, those with more than one job and those with major changes in their life, like a recent marriage or a new child.
Having enough tax withheld or making quarterly estimated tax payments during the year can help you avoid problems at tax time. Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year.
There are two ways to pay tax:
- Withholding from your pay, your pension or certain government payments, such as Social Security.
- Making quarterly estimated tax payments during the year.
This will help you avoid a surprise tax bill when you file your return. You can also avoid interest or a penalty for paying too little tax during the year. Ordinarily, you can avoid this penalty by paying at least 90 percentof your tax during the year. You make your estimated payments based on the income you expect to earn and any credits you expect to receive in the year. You can use your prior year tax return as a guide and Form 1040-ES, Estimated Tax for Individuals has a worksheet to help you figure your estimated payments.
If you want to avoid a tax bill, you may need to change your withholding. Changes in your life, such as marriage, divorce, working a second job, running a side business, or receiving any other income without withholding can affect the amount of tax you owe. And if you work as an employee, you don’t have to make estimated tax payments if you have more tax withheld from your paycheck. This may be a convenient option if you also have a side job or a part-time business.
Some income is not subject to withholding. This includes some income from self-employment, the gig economy, or some rental activities. Be sure to make estimated tax payments on those sources of income throughout the year. You may also make estimated tax payments if the withholding from your salary, pension or other income doesn’t cover your income tax for the year.
You can use estimated tax payments to pay both income tax and self-employment tax (Social Security and Medicare).
Check your withholding often and adjust it when your situation changes. To do this fill out a new Form W-4 and give it to your employer.
In most cases, you must pay estimated tax for 2024 if both of the following apply:
1. You expect to owe at least $1,000 in tax for 2024, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:
a. 90% of the tax to be shown on your 2024 tax return, or
b. 100% of the tax shown on your 2023 tax return. Your 2023 tax return must cover all 12 months.
Estimated tax payments are due as follows:
1st payment …………….. April 15, 2024
2nd payment ……………. June 17, 2024
3rd payment …………….. Sept. 16, 2024
4th payment …………….. Jan. 15, 2025
Note: If these due dates fall on a Saturday, Sunday or legal holiday, the payments are due the next business day.
There are many options for paying estimated tax, including paying online, by phone, or from your mobile device using the IRS2Go app. Other electronic payment options include paying online from your bank account directly to the IRS through the Electronic Federal Tax Payment System (EFTPS). You can also use the option to pay by credit card or digital wallet. Finally, you can choose to pay the estimated tax in four equal quarterly payments using Form 1040-ES by mailing it with a paper check to the IRS.
At My Accounting Now we will help you with everything related to taxes and avoid any IRS penalties. Schedule a consultation with our team by calling 786-228-8689 or sending an email to info@myaccountingnow.com