You may have heard about a recent tax deadline or about estimated taxes payment and weren’t quite sure if this applied to you or not. In this blog, we’ll explore who this pertains to and how to go about making payments.
Estimated income taxes are just that - estimates of how much tax you will owe. This article will primarily focus on payments owed to the IRS (Internal Revenue Service). Still, estimated quarterly payments can be paid to other taxing authorities such as cities or RITA in Ohio (Regional Income Tax Agency). Think of estimated tax payments as prepayments on your yet determined tax liability for the current tax year.
If you have no other income than a W2 from your employer, this article won’t apply to you. However, if you expect to owe tax of $1,000 ($500 for Corporations) or more when your return is filed, you should make estimated tax payments. If you operate a C Corporation, are a sole proprietor, partner, or S Corp shareholder, or receive income from sources such as interest, dividends, or capital gains, you likely have to make estimated tax payments.
Yes! Estimated taxes aren’t optional payments. If you do not pay enough tax throughout the current tax year, either through payroll tax withholding or through estimated tax payments, you may be subject to penalties. Therefore, you should aim to have paid at least 90% of the tax you will owe for the current year before the year ends.
Estimated taxes refers to those due before March or April 15. The point is to estimate how much you might owe next March or April and then pay a portion of that during the current year. For example, the due dates for estimated taxes for Tax Year 2021 are:
Estimated tax calculation is based on last year’s taxes. For example, if your 2021 taxes owed were $1000, you’d have to pay $1,000 by April 15. It would be estimated that your 2022 tax owed will also be $1000, and this estimate would be divided by 4, with payments due on the below dates. Your payments would look like this:
If you experience a material change in your earnings in the current tax year, reach out to your tax professional to see if your estimated taxes calculation should be redone. Even if not required, it can help with cash flow to avoid having a large bill due in the Spring.
If Szweda Consulting prepares your tax return, we provide you with payment vouchers for you to mail to the IRS. You can also use the numbers off of the vouchers to make online payments. We recommend the latter option. Create your online IRS account on the Electronic Federal Tax Payment System (EFTPS) here: http://eftps.gov
If you have W2 income in addition to a type of income that triggers the estimated tax requirement, you can avoid making separate payments by having your employer withhold more money. To have your employer withhold more tax from your earnings, complete the IRS Form W-4 again and enter in an amount for additional withholding.
If you need help filling out Form W-4 or have any questions about estimated taxes, please reach out to Szweda Consulting. One of our certified tax professionals will be happy to work with you. We can help you determine if you are required to pay estimated taxes, how much taxes to pay, and how best to pay them.
Szweda Consulting does not provide legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Contact us individually, or your personal tax, legal, or accounting advisor before engaging in any transaction.