Expanded Penalty Waiver Available If 2018 Tax Withholding And Estimated Tax Payments Fell Short Refund Available For Those Who Already Paid 2018 Underpayment Penalty
The IRS lowered to 80 percent the threshold required for certain taxpayers to qualify for estimated tax penalty relief if their federal income tax withholding and estimated tax payments fell short of their total tax liability in 2018. In general, taxpayers must pay at least 90 percent of their tax bill during the year to avoid an underpayment penalty when they file. On January 16, 2019, the IRS lowered the underpayment threshold to 85 percent and on March 22, 2019, the IRS lowered it to 80 percent for tax year 2018.
This additional expanded penalty relief for tax year 2018 means that the IRS is waiving the estimated tax penalty for any taxpayer who paid at least 80 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two.
Taxpayers who have not filed yet should file electronically. The tax software was updated and uses the new underpayment threshold and will determine the amount of taxes owed and any penalties or waivers that apply. This penalty relief is also included in the revision of the instructions for Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts.
What Should I Do
First: Figure out how much you can pay
You need to consider your entire financial situation. Make a list of your assets and income, and consider other debts you might owe to figure out how much you can pay on your tax debt. Before you enter into any kind of payment agreementThe IRS will typically discuss payment options with taxpayers prior to the assessment of additional tax., be sure you can pay that amount every month, on time.
Choose the payment option that fits your situation
If you can pay the full amount now. You can pay with an electronic funds transfer or with a credit or debit card, or with a check by mailing it to the address listed on your bill or bringing it to your local IRS office.
If you cant pay the full amount now, but can pay it within 120 days
If you cant pay in full immediately, the IRS offers additional time to pay in full. Its not a formal payment option, so theres no application and no fee, but interest and any penalties continue to accrue until the tax debt is paid in full.
For information on the additional time up to 120 days, call the IRS at 800-829-1040 or 800-829-4933 .
If you need to make monthly payments to pay off your debt
You can ask for an Installment Agreement, which is a fixed monthly payment. This is a formal agreement with the IRS and involves an application process and fees.
You wont be able to pay off the full debt
An Offer in Compromise allows you to pay less than the full amount you owe.
Calculating Your Income Taxes As An Independent Contractor
Well continue with the same scenario to estimate your federal income taxes. And lets assume youre single, have no other income and claim the standard deduction.
Start by calculating your taxable income after deductions. Take your $100,000 in earnings and subtract $7,065 . Then, subtract $12,950 . That leaves you with $79,985 of taxable income.
What kind of income tax hit will you take? IRS tax tables for 2022 have not yet been released, but the 2021 tables indicate that if your taxable income had been $79,985 last year, you would have owed income taxes of $13,343. Well use that as a rough benchmark for what youll owe for 2022.
Add your estimated self-employment taxes and your estimated federal income taxes , and you get an estimated federal tax liability of $27,473. Divide that number by four to determine the amount of your estimated quarterly payments.
If you make those payments on time, then you shouldnt have to worry about a hefty tax bill when you file your federal return.
Just keep in mind that you may need to make estimated state income tax payments, and those rates and deadlines vary by state.
If you need help calculating your estimated payments, use IRS Form 1040-ES, try our income tax calculator or speak with a tax professional to get a more dialed-in estimate of what you might owe.
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How To Pay Quarterly Taxes
So, if you discover youre required to pay quarterly taxes, you must first use Schedule C of Form 1040 to determine how much you owe. However, if your net earnings equate to less than $5,000, you may be able to file a Schedule C-EZ instead. Both forms will help you determine your net earnings or loss.
Then, you will use this number on your Form 1040 to calculate the total amount of self-employment tax you must pay during the year. If you file a joint return, you and the other self-employed person must calculate income separately. Therefore, its wise to consult with a tax professional who can help you ensure youre calculating the right amounts and abiding by IRS guidelines.
Filing quarterly taxes requires that you use Form 1040-ES, Estimated Tax for Individuals. Your annual tax return from the previous year is necessary to complete this form. Once filled out, the forms worksheet will indicate whether you must file quarterly estimated tax.
To make quarterly payments you can:
- Submit the payment electronically with the Electronic Federal Tax Payment System
- Mail-in vouchers that are on the Form 1040 SE
Easy Ways To Pay Taxes
IRS Tax Tip 2018-87, June 6, 2018
The IRS offers several payment options where taxpayers can pay immediately or arrange to pay in installments. Taxpayers should not ignore a bill from the IRS because as more time passes, interest and penalties accumulate.
Here are some ways to make payments:
- Direct Pay. Taxpayers can pay tax bills directly from a checking or savings account free with IRS Direct Pay. Taxpayers receive instant confirmation once theyve made a payment. With Direct Pay, taxpayers can schedule payments up to 30 days in advance. They can change or cancel a payment two business days before the scheduled payment date.
- Taxpayers can also pay their taxes by debit or credit card online, by phone or with a mobile device. The IRS does not charge a fee, but convenience fees apply and vary depending on the card used.
- Installment agreement. Taxpayers who are unable to pay their tax debt immediately may be able to make monthly payments. Before applying for any payment agreement, taxpayers must file all required tax returns. They can apply for an installment agreement with the Online Payment Agreement tool, which also has more information about whos eligible to apply for a monthly installment agreement.
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The Electronic Federal Tax Payment System
The Electronic Federal Tax Payment System is a web service operated by the U.S. Treasury Department for processing federal tax payments. You must set up a profile account with your bank account information. But you can then make payments for various tax obligations, including extension payments, estimated taxes, or even tax balances for previous years.
You can schedule a payment in advance. It will automatically be withdrawn from your bank account on the date you designate.
Stimulus Check Irs Phone Number: Where To Call
The IRS Economic Impact Payment phone number is 800-919-9835. You can call to speak with a live representative about your stimulus check.
Be prepared to sit on hold, though. If the automated responses cant answer your questions and youd like to talk to a live operator, you may join a long waiting list. Some people say they havent even been able to get through.
Thats why the IRS recommends using its dedicated stimulus check portal for fast assistance. It also reminds those who are eligible for a stimulus check but arent required to file a tax return to use the Non-Filers tool to register for their payment.
Looking for more information about stimulus checks? Check out our stimulus check FAQ page for answers to common payment questions.
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Why The Government Requires Quarterly Estimated Tax Payments
Before outlining how to pay quarterly taxes, you must first understand who owes quarterly taxes and why the IRS requires them. The U.S. tax system uses a pay-as-you-go income tax system. With this type of system, taxpayers pay taxes as they earn income. Therefore, the government can tax W-2 employees with withholdings and self-employed individuals with quarterly tax payments. If you work for yourself as an independent contractor or freelancer, your taxes typically are not automatically taken from your paychecks. Therefore, the IRS collects income taxes with quarterly tax payments.
To determine if a taxpayer must make quarterly tax payments, they follow several guidelines.
- You anticipate owing more than $1,000 when filing your return for 2022
- You anticipate the withholding and tax credits will be less than 90% of your estimated tax liability for 2022 or 100% of your 2021 year tax liability .
If your adjusted gross income exceeds $150,000 $75,000 if youre married and file separately the requirement is 110%. Farmers and fishermen are an exception to this requirement. If youre in either of these professions and earn at least 66.6% of your income from the trades, you only need to pay a corresponding amount of the tax liability.
While paying your quarterly tax estimates seems like a pain, it can help you avoid a big tax bill during tax time. In addition, paying quarterly taxes makes your tax payment more manageable throughout the year.
What Is The Earned Income Tax Credit
The American Rescue Plan of 2021 also boosted the Earned Income Tax Credit, which has been available for decades and is aimed at helping low-income workers. Prior to the legislation, childless workers between 25 to 64 could only get up to $538, but the pandemic law boosted that to $1,502.
The law also increased the amount that can be claimed by working families with children, increasing it to as high as $6,728 for parents with three children.
Most people can claim the EITC if they earn under $21,430 for single taxpayers or $27,380 for married people filing jointly.
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Pay By Check Or Money Order
You can always make a check payable to the United States Treasury if you prefer sidestepping the internet and you want to make a conventional payment. Be sure to write your Social Security number, the tax form number, and the tax year in the memo field of your paper check.
You can also send money orders to the IRS if you use the mail-in option.
Send the check along with Form 1040-V, which is a payment voucher, but don’t staple or paperclip them together.
Mail it to the appropriate address shown on page 2 of Form 1040-V, or you can find the correct address for the nature of your payment and your state of residence on the IRS website. These addresses vary depending on your state of residence and whether you’re also submitting a payment. They can change periodically. Be sure to access them from returns for the current tax year or directly on the website.
Pay With Electronic Funds Withdrawal
You can usually set up a direct debit from your checking account if you use tax preparation software to e-file your return or if you enlist the services of a tax professional. This option involves entering your bank account and routing numbers into the program. It’s only available to taxpayers who e-file.
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How To Make An Irs Payment: 10 Ways To Pay Your Taxes
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Writing a check was the only way to pay the IRS back in the day. Now there are a ton of options.
Heres an overview of some common ways to make an IRS payment, what theyll cost you, and the pros and cons of each IRS payment method.
Stop And Start Dates For Underpayment Interest
In general, we charge interest on underpayments starting on the due date of the amount you owe and will continue to accrue until the balance is paid in full:
- Tax is due on the return filing date extensions to file do not extend the date for payment of the tax.
- Penalties and additions to the tax due dates vary by penalty type:
- Failure to File penalty, also called the delinquency penalty, is due on the return due date, or extended return due date if an extension of time is filed.
- Failure to Pay, Underpayment of Estimated Tax by Corporations, Underpayment of Estimated Tax by Individuals and Dishonored Check penalties are due on the date we send you a notice or assess the penalty.
- Accuracy-related penalties are due on the return due date, or extended return due date if an extension of time is filed.
If you received a notice, you will not be charged interest on the amount shown if you pay the amount owed in full on or before the “pay by” date.
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Penalty For Underpayment Of Estimated Tax
If you didnt pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers, fishermen, and certain higher income taxpayers. Please refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
However, if your income is received unevenly during the year, you may be able to avoid or lower the penalty by annualizing your income and making unequal payments. Use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts , to see if you owe a penalty for underpaying your estimated tax. Please refer to the Form 1040 and 1040-SR Instructions or Form 1120 Instructions PDF, for where to report the estimated tax penalty on your return.
The penalty may also be waived if:
Coronavirus Tax Relief For Self
Coronavirus Aid, Relief, and Economic Security Act permits self-employed individuals making estimated tax payments to defer the payment of 50% of the social security tax on net earnings from self-employment imposed for the period beginning on March 27, 2020 and ending December 31, 2020. This means that 50% of the social security tax imposed on net earnings from self-employment earned during the period beginning on March 27, 2020, and ending December 31, 2020, is not used to calculate the installments of estimated tax due. Please refer to Publication 505, Tax Withholding and Estimated TaxPDF, for additional information.
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How To File Taxes As An Independent Contractor
Independent contractors generally file Schedule C, Profit or Loss from Business with their individual tax returns to report income and expenses to the IRS. An independent contractor who structures their business as a corporation, a partnership or an LLC with more than one member may file a separate business tax return.
How Will This Affect Me
The IRS wont suspend interest and penalty charges, even if it stops trying to collect the balance due.
The IRS may keep your tax refunds and apply them to your debt.
You can still make voluntary payments.
The IRS can issue a levy to satisfy a tax debt when you dont respond to notices informing you of the debt and asking for payment.
The IRS may file a Notice of Federal Tax Lien even if your account is placed in CNC status. The filing of an NFTL can affect your credit rating, and your ability to sell property or other assets.
The IRS is required by law to notify the State Department if you are certified as owing a seriously delinquent debt. But, the IRS has discretion to exclude debts from passport certification that are CNC.
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Automatic Extension Of Time To File
Taxpayers who need more time to prepare and file their federal tax return can apply for an extension of time to file until Oct. 15. To get an extension, taxpayers must estimate their tax liability on the extension form and pay any amount due.
Individual taxpayers have several easy ways to file Form 4868PDF by the July 15 deadline. Tax software providers have an electronic version available. In addition, all taxpayers, regardless of income, can use IRS Free File to electronically request an automatic tax-filing extension.
Cash Check Or Money Order
There are a wealth of new ways to pay your taxes to the IRS, but the classics are still around, too. You can pay your taxes in person via cash, check, or money order. One option for in-person payment is via your local IRS office, also known as the Taxpayer Assistance Center . Here, you can get help with all sorts of tax needs, including tax payments.
In-person payment at a Taxpayer Assistance Center can take 5 to 7 business days to process, so youll want to give yourself at least a week and a half of time before payment is due. Also, remember that the federal tax deadline is the same for all Americans, so Tax Assistance Centers can be quite busy as the tax deadline approaches. Consider making an appointment ahead of time for prompt service.
Another option for payment via cash is to pay at a participating retail store, for instance, your local convenience store or pharmacy. This service costs $3.99. In order to do so, visit the Official Payments site and use the PayNearMe function listed under Extras. Official Payments will confirm your information and verify it with the IRS. This may take 2-3 days. Once youre verified, PayNearMe will email you a link to your unique payment code as well as information about your payment location which youll need to either print or save on your smartphone.
Cost: Processing time:Maximum payment:
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