Learn about late payments for federal estimated quarterly taxes
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- May 21, 2024
- Bookkeeping
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Missing quarterly deadlines, even by one day, can mean accruing penalties and interest. If you miss a payment deadline, your best bet is to send your payment as soon as you can. Estimated quarterly taxes are due—you guessed it—quarterly. This will help you avoid a surprise tax bill when you file your return. You can also avoid interest or a penalty for paying too little tax during the year.
Calculating your estimated taxes with Form 1040-ES
To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. The first three quarterly tax payments of 2024 were due April 15, June 17 and Sept. 16. Estimated tax payments should be made as income is earned, estimated tax with the IRS collecting them quarterly.
Aim to make each payment on time
The failure to pay penalty is 0.5% of the unpaid taxes for each month or part of a month you don’t pay, up to 25% of your unpaid taxes. Even worse, the IRS charges interest on penalties, which increases how much you owe. This alternate way of calculating your quarterly tax payments lets you pay less when you earn less — without underpayment penalties. In this article, we’ll go over everything you need to know about missing a quarterly estimated tax payment — including what the penalties are and how to potentially get out of them.
Penalties May Be Waived
Now we know more about quarterly estimated taxes, who has to pay them, and how they work. There’s a lot of misinformation and misconceptions around estimated quarterly taxes. Exposing these myths can help you avoid costly penalties for underpayment of your estimated tax. Even if none of the above applies to you, you can still be subject to estimated taxes.
- The Tax Cuts and Jobs Act, enacted in December 2017, changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding.
- The IRS recommends that everyone do a paycheck checkup in 2019, even if they did one in 2018, to determine if they need to adjust their tax withholding or make estimated tax payments throughout the year.
- Alternatively, you can increase your withholding by filing an adjusted W-4 through your employer.
- Some income is not subject to withholding but if you work as an employee, you may choose to have more tax withheld from your paycheck.
- Additionally, you may need to make estimated tax payments because you work as an independent contractor on the side of your regular employment.
- This means that taxpayers need to pay most of their tax during the year, as the income is earned or received.
For estimated tax purposes, a year has four payment periods. For most people, the due date for the first quarterly payment is April 15. The next payments are due June 15 and Sept. 15, with the last quarter’s payment due on Jan. 15 of the following year. If these dates contra asset account fall on a weekend or holiday, the deadline is the next business day. This is because, unlike with W-2 jobs, self-employed people don’t have taxes withheld from their paychecks. So quarterly taxes are the freelancer version of traditional tax withholding.
Wage-earners and salaried employees can avoid estimated tax payments by having their employer withhold tax from their wages. To determine the right amount to withhold, use the Tax Withholding Estimator , available on IRS.gov. Then, based on its recommendations, they can use Form W-4, Employee’s Withholding Allowance Certificate, to tell their employer how much tax https://www.bookstime.com/ to withhold from their pay.
You’ll still have to pay a penalty for the estimated payment you skipped in June. That’s because it includes interest for missed payments, and the interest rate can change from quarter to quarter. Say you know there’s an estimated tax due date coming up, but you just can’t scrounge up the funds. Technically, self-employed people aren’t the only ones who have to pay taxes in installments. Not all freelancers and independent contractors actually have to pay quarterly. If you freelance part-time or as a side hustle, you could be in the clear.