Quarterly Tax Liability Payments Due This Week
The Internal Revenue Service (IRS) has announced that the deadline for taxpayers who pay estimated taxes for the second quarter is June 15. Individuals, including sole proprietors, partners, and S corporation shareholders are required to make estimated tax payments.
If you expect to owe $1,000 or more in taxes when you file your income tax return, you will likely be required to make estimated tax payments to the IRS.
Quarterly Estimated Tax Payments Due June 15
Estimated tax is a quarterly payment of taxes for the year based on your reported income for the period. Most of those are small business owners, freelancers, and independent contractors who are often required to pay taxes on a quarterly basis. The IRS requires quarterly estimated tax payments to be filed for those who do not have their taxes automatically withheld from their paychecks, as regular employees do.
Estimated taxes apply to any type of taxable income that is not subject to withholding. This includes earned income, dividend income, rental income, interest income, and capital gains. In addition, it also applies for:
Self-employment on net earnings from self-employment to pay Social Security and Medicare taxes
Alternative Minimum Tax (AMT) if it exceeds the regular tax
8% on net investment income, including business income for an owner who does not materially participate in company activities (i.e., a passive investor)
9% additional Medicare tax on net earnings from self-employment and wages if modified adjusted gross income exceeds a threshold amount geared to filing status
Employment taxes on wages for your household employees
You can avoid paying estimated taxes in one of two ways: If you have a working spouse who agrees to increase his/her wage withholding to cover your obligation provided you file a joint return; or opting for an S corporation status if you’re a limited liability company (LLC) where you get to take a salary from the business from which withholding can be made.
Who Does Not Have to Pay Estimated Tax?
If you currently receive salaries and wages, you can avoid having to pay an estimated tax by asking your employer to withhold more tax from your earnings. For this to happen you will need to file the Form W-4 with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.
In addition, you are not required to pay estimated tax for the current year if you meet all three of the following conditions: you had no tax arrears for the previous year; you were a U.S. citizen or resident for the whole year, and your prior tax year covered a 12-month period.
How You Can Pay Your Estimated Taxes?
You can use Form 1040-ES, to figure your estimated tax. You can then pay your taxes by mailing a check or pay through a money order that is made payable to the United States Treasury. However, a faster and easier option is available through Electronic Federal Tax Payment System (EFTPS). They can do this by securely logging into their IRS Online Account or using IRS Direct Pay to submit a payment from their checking or savings account. They also have the option to pay using a debit, credit card or digital wallet. However, when paying taxes with debit or debit cards additional charges will be applied by the payment processor.
Taxpayers are required to make a payment each quarter the first installment was on April 15, 2022; the second and the impending is on June 15, 2022; the third on September 15, 2022; and the final on January 12, 2023. Taxpayers are encouraged to make estimated tax payments in four equal amounts to avoid a penalty. However, if they receive income unevenly throughout the year, they may be able to vary the amounts of the payments to avoid or lower the penalty by using the annualized installment method.
Taxpayers can use the IRS Interactive Tax Assistant online to see if they are required to pay estimated taxes. They can also refer to the worksheet in Form 1040-ES, Estimated Tax for Individuals, for more details on who must pay the estimated tax. Corporations for their part have to make estimated tax payments if they expect to owe tax of $500 or more when they file their return.
This article, “Quarterly Tax Liability Payments Due This Week” was first published on Small Business Trends