Make a quarterly payment quickly to avoid a surprise invoice, a penalty

IRS

WASHINGTON – The IRS is urging taxpayers to check their options to avoid being subject to estimated tax penalties, which apply when a person pays less in taxes. Taxpayers who paid too little tax in 2021 can still avoid a surprise bill and possible penalty by making a quarterly estimated tax payment now, directly to the Internal Revenue Service. The deadline to make a payment for the fourth quarter of 2021 is Tuesday, January 18, 2022.

Income taxes are payable as they arise. This means that taxpayers have to pay most of their tax during the year as the income is earned or received. There are two ways to do this:

  1. Withholding from paychecks, retirement payments, and certain government payments, such as Social Security benefits or unemployment compensation. Most people pay their taxes this way.
  1. Make quarterly tax payments estimated throughout the year to the IRS. Self-employed people and investors, among others, often pay taxes this way.

Act now to avoid a penalty

Either method of payment – withholding or estimated tax payment – or a combination of the two, can help avoid a surprise tax bill at tax time and the accompanying penalty. often apply.

If a taxpayer has not made the required quarterly estimated tax payments earlier in the year, making a payment quickly to cover those missed payments will generally reduce and may even eliminate any possible penalties. Because the penalty calculation takes into account when the payment (s) were made, even making a payment now, rather than waiting for the April filing deadline, often helps.

Who should make a payment

People who owed tax when they filed their 2020 income tax return may find themselves in the same situation when they filed for 2021. This will likely be true, especially if they haven’t taken steps to avoid it. another shortfall by increasing their withholding in 2021.

People in this situation often include those who detailed in the past but now benefit from the standard deduction, two salaried households, employees with non-wage sources of income and those with complex tax situations.

Additionally, families who received advance child tax credit payments in 2021, but do not expect to be eligible for the credit when they file their 2021 return, may need to make a payment of estimated tax.

Additional points to consider:

  1. Most income is taxable. In addition to salaries, interest and other investment income, which also includes income related to virtual currencies, redemption interest and odd-job economy income is taxable.
  1. Unemployment benefits are fully taxable in 2021. The American Rescue Plan Act of 2021 authorized an exclusion of unemployment benefits of up to $ 10,200 for 2020 only. Often, this means that an estimated tax payment must be made, especially if no federal income tax has been withheld from those payments.
  1. Various financial transactions, especially at the end of the year, can often have an unexpected tax impact. Examples include year-end and vacation bonuses, stock dividends, distributions of capital gains from mutual funds, and stocks, bonds, virtual currency, real estate or other property sold at a profit.

The Withholding Tax Estimator, available at IRS.gov, can often help people determine if they owe an estimated tax payment.

Taxpayers can also use the spreadsheet included with the Estimated Tax Form 1040-ES, also available at IRS.gov. Additionally, Publication 505, Withholding Tax and Estimated Tax, contains additional details, including worksheets and examples, which may be particularly helpful to those with dividend or capital gains income who should alternative minimum tax or self-employment tax, or have other situations.

How to make an estimated tax payment

The fastest and easiest way to make an estimated tax payment is to do so electronically using IRS Direct Pay. Taxpayers can schedule an advance payment for the January deadline.

Taxpayers can now also make a payment through their IRS online account. There they can see their payment history, any pending or recent payments, and other useful tax information.

The IRS does not charge a fee for these services. Additionally, using these or other electronic payment options ensures that a payment is credited quickly.

For more information on other payment options, visit IRS.gov/payments.

Plan ahead

While it’s too early to file a 2021 return, it’s never too early to prepare for the upcoming tax filing season. For more tips and resources, see the Get Ready page on IRS.gov.


Source link

Elaine R. Knight