The Internal Revenue Service (IRS) published on its website a reminder for taxpayers who pay estimated taxes, since the deadline to submit your payment for the third quarter is 15 September 2022.
The IRS explains that taxpayers who are not subject to withholding, such as the self-employed, investors, or retirees, may need to make quarterly estimated tax payments.
Taxpayers with other income not subject to withholding, including interest, dividends, capital gains, alimony, cryptocurrencies, and rental income, typically also make estimated tax payments.
Taxpayers must make estimated tax payments if they expect:
– Owing at least $1,000 in taxes for 2022 after subtracting your withholdings and tax credits.
– That your withholdings and tax credits are less than the lesser of:
- 90% of tax to be shown on your tax return of 2022 or
- 100% of the tax shown on your tax return for 2021. Your tax return for 2020 must cover the 12 months.
The IRS notes that special rules apply to some groups of taxpayers, such as farmers, fishermen, victims of accidents and disasters, the recently disabled, recent retirees, and those who receive uneven income during the year .
The Publication 505, Withholding taxes and estimated taxes, provides more information about the rules of this item. The worksheet on Form 1120-ES, Estimated Tax for Individuals, or Form 1120-W, Estimated Tax for Corporations, has details on who must pay estimated tax.
Estimated Tax Calculation
To calculate estimated tax, individuals must calculate their Adjusted Gross Income ( Expected AGI), taxable income, taxes, deductions and credits for the year.
When calculating the estimated tax for 2022, use the income, deductions and credits from 2021 as a starting point. Use the federal income tax return for 2021 as a guide. Taxpayers can use Form 1120-ES to calculate their estimated tax.
The Tax Withholding Estimator on IRS.gov offers taxpayers a guide for their employers to withhold the correct amount of tax from their paycheck. It also has instructions for filing a new Form W-4 to give to your employer to adjust the amount withheld each payday.
Avoid the penalty for underpayment
Taxpayers who underpaid may have to pay a penalty. This applies whether they paid through withholding or through estimated tax payments. A late estimated tax payment penalty may also apply, even if someone is due a refund when they file their tax return.
To see if taxpayers owe a penalty, they must use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. You can also see the instructions of the Form 2210 in the section “Waiver of penalty”. The IRS may waive the penalty if someone underpaid due to unusual circumstances and not willful negligence, for example:
– Accident, disaster, or other unusual situation.
– A person retired after serving 62 years during a tax year in which estimated tax payments were applied.
– A person became disabled during a tax year when estimated tax payments were applied. estimated tax payments.
– Specific written advice from an IRS agent given in response to a specific written request.
The fourth and final estimated tax payment for 2022 is due on 17 of January of 2023.
You may also be interested in:
– IRS Announces Penalty Waiver for Certain Tax Returns and 2020 due to the pandemic
– IRS focuses 46% of its audits on the most poor, according to TRAC data
– IRS mistakenly released sensitive information about some 120,12 taxpayers
Taxpayers who underpaid may have to pay a penalty. This applies whether they paid through withholding or through estimated tax payments. A late estimated tax payment penalty may also apply, even if someone is due a refund when they file their tax return.
To see if taxpayers owe a penalty, they must use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. You can also see the instructions of the Form 2210 in the section “Waiver of penalty”. The IRS may waive the penalty if someone underpaid due to unusual circumstances and not willful negligence, for example:
– Accident, disaster, or other unusual situation.
– A person retired after serving 62 years during a tax year in which estimated tax payments were applied.
– A person became disabled during a tax year when estimated tax payments were applied. estimated tax payments.
– Specific written advice from an IRS agent given in response to a specific written request.
The fourth and final estimated tax payment for 2022 is due on 17 of January of 2023.
You may also be interested in:
– IRS Announces Penalty Waiver for Certain Tax Returns and 2020 due to the pandemic
– IRS focuses 46% of its audits on the most poor, according to TRAC data
– IRS mistakenly released sensitive information about some 120,12 taxpayers