The Internal Revenue Service (IRS) has warned Americans who pay estimated taxes that the third quarter payment is fast approaching.
Taxpayers who are not subject to withholding tax must make estimated tax payments on a quarterly basis. The next deadline is September 15, 2023.
And the notorious agency shows no mercy for missed payments.
You should make estimated tax payments if you expect to owe $1,000 or more in taxes when you file your tax return.
This includes gig workers, sole proprietors, retirees, partners and S corporation shareholders.
The IRS outlined who should make payments, including:
- Those who deduct withholding taxes and tax credits will owe at least $1,000 in taxes for 2023.
- The withholding tax and tax credits will be less than 90 percent of the tax reported on your 2023 tax return or 100 percent of the tax reported on your full 12-month 2022 tax return.
DETERMINATION OF ESTIMATED TAX
As ambiguous as the tax process may seem, your estimated tax is not a number you pull out of a hat.
Easily calculate your expected adjusted gross income (AGI), taxable income, taxes, deductions and credits for 2023.
The IRS suggests using last year’s taxes as a helpful starting point.
Self-employment has many benefits, but it requires you to stay on top of your finances.
Typically, employees can spend their full salary because taxes have already been deducted.
Freelancers and gig workers see larger paychecks, but should set aside a portion for Uncle Sam to avoid waiting for it later, especially when it comes to larger amounts.
AVOID A PUNISHMENT FOR UNDERPAYMENT
Aside from late or missed payments, incorrectly calculating your estimated taxes can result in a penalty.
If you expect a refund, make sure it isn’t wasted on fees for mismanaging your finances.
The Internet is your friend for all questions, including the tools available on IRS.gov to help you check if you need to pay estimated taxes.
“Taxpayers should use Form 2210 (Underpayment of Estimated Tax by Individuals, Estates and Trusts) to determine whether they owe a penalty,” the agency says.
“Taxpayers can also apply for a waiver of penalty if they have underpaid due to exceptional circumstances and non-willful negligence,” it added.
How to pay your estimated taxes
An electronic payment is the fastest and safest way to pay your estimated taxes.
Log in to your IRS online account or use IRS Direct Pay to submit a payment from your checking or savings account.
You can also use the Electronic Federal Tax Payment System (EFTPS) to make an estimated tax payment.
If paying by check or money order, payment must be made to the “U.S. Department of the Treasury.”
The IRS recommends making estimated tax payments as the most effective way to stay current and avoid surprises when filing taxes.
Once you’re up to date, be sure to mark your calendar that the fourth and final estimated tax payment for 2023 is due on January 16, 2024.
The IRS also urgently warned more than 2.5 million taxpayers to grab their money.
Additionally, The US Sun has created a step-by-step guide on how to apply for your stimulus check.