The IRS prefers a “pay-as-you-go” system for owed taxes. Rather than have a big payment at the end of the year, the IRS requires individuals to assess their own tax payments and pay the IRS on a quarterly basis. This applies to small businesses and the self-employed. HOWEVER, this only applies to those who would expect to owe tax anyway. Read on for these details.
As a general rule, the IRS expects quarterly tax payments due about 15 days after the end of that quarter.
You can use IRS form 1040-ES, Estimated Tax For Individuals, to work out your expected payment.
If you own a small corporation, you can use form 1120-W to estimate your corporate taxes.
Special rules apply for farmers, fishermen, and some high-income citizens. Use IRS Publication 505 if you fall into one of these special categories.
If you are regularly in a position to make quarterly tax payments throughout the year, the IRS can and will pursue the debt. In some cases, you may even be charged a penalty if the IRS finds you owe withholding or estimated tax payments, and you underpay or pay late.
If you’re working in any kind of wage-earning or salaried position, your employer typically withholds part of your paycheck for you. This is a set amount per paycheck determined when you filled out your W-4. If there’s a refund at the end of the year, it figures from your withholding. If you are in this position, you don’t have to worry about this!
The estimated tax policy is a work-around for those who earn income but do not have an employer, such as the self-employed professional, sole proprietors, corporate shareholders, business partners, and other self-sufficient individuals. There are yet more exceptions to these rules.
As a *basic* rule of thumb, if you owed no taxes the previous year (factoring in credits, refunds, etc.) then you are likely fair to assess your tax liability to be zero. However your situation can change, so be sure to stay abreast of your tax situation.
Remember that tax liability is figured after deductions, credits, and all. Households which routinely receive an Earned Income Credit or Child Tax Credit usually don’t have any concern with paying estimated taxes. However, you can always go through the 1040-ES worksheet to figure your taxes for yourself. It’s a short form, should take maybe 20 minutes to go through.
For example, the current COVID-19 pandemic necessitated the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allows partial deferred payment of Social Security tax. These policy changes come and go, so bookmark the IRS resource for Estimated Taxes to keep up with changes.
The IRS hosts a handy online app for planning your tax payment schedule. Just go to IRS.gox/taxcalendar and follow the instructions from there. You get a nice monthly calendar grid and a worksheet to track your situation.
If you are looking for help to resolve your own IRS debt case, schedule a consultation with one of our expert tax attorneys by clicking here or calling (888) 515-4829.
If you are doing your case on your own, check out our free tax relief help guide. You can also ask a question below by posting a comment or post a comment on one of the videos on our YouTube channel and well do our best to assist you.
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