Are you required to make estimated income tax payments? Do you know if you are required to make estimated income tax payments? Are you aware that the final estimated tax payment toward 2022 income taxes is due January 17, 2023?
For many taxpayers, they are employed and receive a Form W-2 which reflects their earned income and the withholding of various taxes from their regular pay. However, if you are a contract employee or retired and receiving income from a retirement source, you most likely are required to make estimated tax payments throughout the year to cover your tax liability. In the event that you are required to make estimated payments and do not do so, you could be subject to underpayment penalties.
So, how do you know if you are required to be making estimated payments?
Generally, if you as an individual taxpayer expect to owe tax of $1,000 or more, you should be making estimated payments. The total anticipated tax obligation is divided into four payments due April 15, June 15, September 15 and January 15 using Form 1040-ES. You can mail your payments or you can make online payments through the IRS.gov website.
If you did not pay enough tax throughout the year through withholdings or estimated payments, a penalty may be assessed if you owe more than $1,000 in tax after subtracting your withholding or payments, or if you paid less than 90% of the total tax for the year, or if you paid less than 100% of your total tax from the prior year.
If your income is received sporadically, there is a Form 2210 for you to use to calculate underpayments based upon the actual date of receipt of income.
Don’t subject yourself to a penalty for underpayment – be proactive and do your homework to determine if you should be making estimated payments. Why incur the cost of penalties?
Remember, the fourth quarter 2022 payment is due January 17, 2023 – don’t delay, pay today.