The Internal Revenue Service (IRS) announced that the deadline for taxpayers paying 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 tax return, you will likely have to make estimated tax payments to the IRS.
Estimated quarterly tax payments due June 15
Estimated tax is a quarterly tax payment for the year based on your reported income for the period. Most of them 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 deducted from their paycheck, as regular employees do.
Estimated taxes apply to any type of taxable income that is not subject to withholding tax. This includes earned income, dividend income, rental income, interest income and capital gains. In addition, it also applies for:
- Self-employment on net self-employment earnings to pay social security and health insurance contributions
- Alternative minimum tax (AMT) if it exceeds ordinary tax
- 8% on net investment income, including business income for an owner who is not materially involved in the activities of the business (i.e. a passive investor)
- Additional 9% Medicare tax on net self-employment income and wages if modified adjusted gross income exceeds a threshold appropriate for filing status
- Social taxes on the wages of your domestic workers
You can avoid paying estimated taxes in two ways: if you have a working spouse who agrees to increase their payroll deduction to cover your obligation on the condition that you file a joint return; or opt for an S corporation status if you are a limited liability company (LLC) where you can receive a salary from the company from which a deduction can be made.
Who does not have to pay the estimated tax?
If you are currently receiving wages and salaries, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your income. For this, you will need to file Form W-4 with your employer. There is a special line on the W-4 form for you to enter the additional amount you want your employer to withhold.
In addition, you are not required to pay the estimated tax for the current year if you meet the following three conditions: you had no tax arrears for the previous year; you were a US citizen or resident for the entire year and your previous tax year covered a 12-month period.
How can you pay your estimated taxes?
You can use the form 1040-ES, to calculate your estimated tax. You can then pay your taxes by sending a check or paying by money order payable to the United States Treasury. However, a faster and easier option is available via 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 of paying with a debit, credit or digital wallet. However, when paying fees with debit or debit cards, additional fees will be applied by the payment processor.
Taxpayers are required to make a payment each quarter, the first payment was on April 15, 2022; the second and next is June 15, 2022; the third on September 15, 2022; and 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 payment amounts to avoid or reduce the penalty using the annualized payment method.
Taxpayers can use the IRS’ online interactive tax wizard to see if they are required to pay estimated taxes. They can also refer to the worksheet for Form 1040-ES, Estimated Tax for Individuals, for details on who should pay the estimated tax. Corporations, on the other hand, must make estimated tax payments if they expect to owe tax of $500 or more when they file their return.
Receive the latest headlines from Small Business Trends. follow us on Google News.