The Internal Revenue Service (IRS) has issued a reminder for taxpayers whose income isn’t subject to withholding. The deadline for the second-quarter estimated tax payment is approaching fast on June 17. Meeting this deadline is important to avoid falling behind on taxes and potentially facing underpayment penalties. Third-quarter payments are due on September 16, with the final estimated tax payment for 2024 due on January 15, 2025.
Eligible taxpayers should note that disaster tax relief can include postponement of filing and payment deadlines. For current provisions and a list of eligible localities, taxpayers should visit the IRS website. Estimated tax payments are commonly made by self-employed individuals, retirees, investors, businesses, and corporations, among others who don’t have taxes withheld from their income.
Taxes are paid as income is earned throughout the year. This can be done either through withholding from pay, pension, or certain government payments like Social Security or by making quarterly estimated tax payments. If not enough taxes are being withheld from salary, pension, or other income, estimated tax payments may be required. Employed taxpayers can avoid making these payments by asking their employer to withhold more from their earnings by submitting a new Form W-4, Employee’s Withholding Certificate.
Who Pays Estimated Tax?
Taxpayers, including sole proprietors, partners, and S corporation shareholders, must make estimated tax payments if they expect to owe $1,000 or more when they file their return. The IRS Interactive Tax Assistant is an online tool that helps determine if estimated tax payments are required. Taxpayers can also refer to the worksheet in Form 1040-ES, Estimated Tax for Individuals, for more information.
Corporations expecting to owe $500 or more must also make estimated tax payments. More details for corporations are available in Publication 542, Corporations. For further information, Publication 505, Tax Withholding and Estimated Tax, provides worksheets and examples helpful for those with dividend or capital gain income, alternative minimum tax, self-employment tax, or other situations.
Individuals earning income not subject to withholding should report it properly, even if it comes from part-time jobs or side hustles. Income may be reported on a Form W-2 or various types of Form 1099. Recipients of Form 1099-K must use it with other tax records to report income. Taxpayers earning income not subject to withholding are advised to make quarterly estimated tax payments to avoid unexpected tax bills.
All income is taxable unless specifically excluded by law, so taxpayers should report profits from selling goods or services, even if they don’t receive a Form 1099-K.
Making estimated tax payments electronically is the most secure, fastest, and easiest method. Taxpayers can use their online account or IRS Direct Pay to make payments from checking or savings accounts. Payments can also be made using credit/debit cards or digital wallets, though fees may apply. Payments can be made at IRS.gov/payments and through the IRS2Go app. The Electronic Federal Tax Payment System (EFTPS) is another method for making payments. Checks or money orders payable to the “United States Treasury” are also accepted. Instructions are available in Form 1040-ES.
Corporations must use electronic funds transfer for all federal tax deposits, including employment, excise, and corporate income tax. Estimated tax installment payments must also be made this way, usually via EFTPS.
Avoiding Penalties
To avoid underpayment penalties, taxpayers should pay most of their taxes during the year, aiming to owe less than $1,000 when filing their return. For 2024, this means paying at least 90% of the tax owed on the 2024 return or 100% of the tax shown on the 2023 return. Exceptions and special rules apply for certain groups, such as farmers, fishermen, higher-income taxpayers, disaster victims, those recently disabled, new retirees, and those with uneven income throughout the year.
Using the Tax Withholding Estimator ensures the right amount of tax is being withheld from paychecks or other income. This tool helps taxpayers avoid underpayment and unexpected tax bills.
For assistance, taxpayers can visit IRS.gov for 24/7 help. Tools available include the Interactive Tax Assistant, Tax Topics and frequently asked questions.
The post originally appeared on following source : Source link