Taxes must be paid as you earn or receive income during the year. Chances are if you receive a regular paycheck (either weekly, bi-weekly, semi-monthly or monthly) from an employer, your taxes are being withheld from that check. You need to make sure the amount being deducted is correct so you don’t owe taxes at the end of the year. Check out my previous blog entitled Please Review Your Pay Check Withholdings Yearly to Avoid Tax Debt.
Estimated Tax Payments Defined
Estimated tax payments are direct payments to the IRS by the Taxpayer for those who do not have income tax withheld from their salary and/or paycheck. Some examples are rental income, 401-K withdrawals, interest, dividends, alimony, self-employment income, capital gains, prizes awards and retirees that receive a pension or retirement other than social security income where either no taxes or not enough are withheld. If you are in business for yourself, you generally need to make estimated tax payments. If you receive any of this type of income or fall into any of the above listed categories, you may have to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.
When Estimated Tax Payments Are Due
Estimated tax payments are typically made quarterly as follows:
- January 1st – March 31st is due April 15th
- April 1st – May 31st is due June 15th
- June 1st – August 31st is due September 15h
- September 1st – December 31st is due January 15th of the following year.
If you don’t pay enough tax through withholding and/or estimated tax payments, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return. Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the actual tax for the current year or 100% of the tax shown on their previous year return. Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees, and those who receive income unevenly during the year. In addition, there is an exception to the penalty for those who base their payments of estimated tax on last year’s tax. The IRS would be remiss if they did not have a form to help you and of course they do in Form 2210.
Changes to Tax Calculations
The Tax Cuts and Jobs Act, enacted in December 2017, changed the way tax is calculated for most taxpayers so it is important to make sure your taxes are being withheld correctly and/or your estimated tax payments are sufficient. Among other reforms, the new law changed the tax rates and brackets, revised business expense deductions, increased the standard deduction, removed personal exemptions, increased the child tax credit and limited or discontinued certain deductions. As a result, many taxpayers may need to raise or lower the amount of tax they pay each quarter.
If you find yourself owing a tax debt of any kind and are wondering how to deal with it, please contact us to schedule an appointment for a free initial consultation. If you would like to discuss your options for dealing with your other debts via Bankruptcy, we can answer all your questions regarding Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, stopping a foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging medical debt, personal loans, payday loans, credit card debt, etc. We can alleviate your stress! We want to help and we can help you!
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Grant McNutt is a Managing Attorney at the Bond & Botes Law Offices in Florence and Haleyville, Alabama. He holds a Bachelor of Science from the University of Alabama, and a Juris Doctorate from the Birmingham School of Law. He has been practicing Consumer Bankruptcy Law since 1999. Read his full bio here.