The Internal Revenue Service reminds taxpayers who pay estimated taxes that the deadline to pay their second quarter tax liability is June 15.

Taxes are pay-as-you-go

This means taxpayers need to pay most of the tax they expect to owe during the year, as income is received. There are two ways to do that:

1. Withholding from pay, pension or certain government payments such, as Social Security.
2. Making quarterly estimated tax payments during the year.

Estimated tax is the method used to pay tax on income that isn’t subject to withholding. This includes income from self-employment, interest, dividends, rent, gains from the sale of assets,

prizes and awards.

Taxpayers may also have to pay estimated tax if the amount of income tax being withheld from their salary, pension or other income isn’t enough. If necessary, those who receive a salary or wages can avoid having to pay estimated taxes by asking their employer to withhold more tax from their earnings. To do this, taxpayers should submit a new Form W-4 to their employer. There is a special line on Form W-4 for them to enter the additional amount they want their employer to withhold.

Who must pay estimated tax?

Individuals, including sole proprietors, partners and S corporation shareholders, generally have to make estimated tax payments if they expect to have a tax liability of $1,000 or more when they file their return.

Individual taxpayers can use the IRS Interactive Tax Assistant online to see if they are required to pay estimated taxes. They can also see the worksheet in Form 1040-ES, Estimated Tax for Individuals, for more details on who must pay estimated tax.

Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when they file their return. Corporations can see Form 1120-W, Estimated Tax for Corporations, for more information.

Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, that can be especially helpful to those who have dividend or capital gain income, owe alternative minimum tax or self-employment tax, or have other special situations.

How to avoid an underpayment penalty

Taxpayers can avoid an underpayment penalty by owing less than $1,000 at tax time or by paying most of their taxes during the year. Generally, for 2022 that means making payments of at least 90% of the tax expected on their 2022 return, or taxpayers who pay at least 100 percent of the tax shown on their return for tax year 2021.

Special rules apply to some groups of taxpayers, such as farmers, fishers, certain higher income taxpayers, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year. For more information, refer to Form 1040-ES.

Generally, taxpayers should make estimated tax payments in four equal amounts to avoid a penalty. However, if they receive income unevenly during the year, they may be able to vary the amounts of the payments to avoid or lower the penalty by using the annualized installment method. Taxpayers can use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if they owe a penalty for underpaying their estimated tax.

Third quarter payments are due September 15 and the final estimated tax payment for tax year 2022 is due on January 17, 2023.

Tax Withholding Estimator

The Tax Withholding Estimator offers a step-by-step method for effectively ensuring taxpayers have the right amount of tax withheld from their paychecks or other income that is subject to withholding.

Using the Tax Withholding Estimator can help taxpayers prevent having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.

How to pay estimated taxes

An electronic payment is the fastest, easiest and most secure way for individuals to make an estimated tax payment. Taxpayers can securely log into their IRS Online Account or use IRS Direct Pay to submit a payment from their checking or savings account. Taxpayers can also pay using a debit, credit card or digital wallet. Taxpayers should note that the payment processor, not the IRS, charges a fee for debit and credit card payments. Both Direct Pay and the pay by debit, credit card or digital wallet options are available online at IRS.gov/payments and through the IRS2Go app.

Taxpayers can also use the Electronic Federal Tax Payment System (EFTPS) to make an estimated tax payment.

Corporations must use electronic funds transfer to make all federal tax deposits (such as deposits of employment, excise and corporate income tax). This includes installment payments of estimated tax. Generally, an electronic funds transfer is made using the Electronic Federal Tax Payment System (EFTPS). However, if the corporation does not want to use EFTPS, it can arrange for its tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on its behalf.

If taxpayers opt to mail a check or money order, they should make them payable to the “United States Treasury.”

Form 1040-ES, Estimated Tax for Individuals, includes instructions to help taxpayers figure their estimated taxes. For information on all payment options, visit Pay Online.

Source: IRS

File electronically when ready; speeds refunds, avoids added interest, penalties

The Internal Revenue Service is encouraging taxpayers who have yet to file their 2021 tax return – including those who requested an extension of time – to file a complete and accurate return electronically as early as possible once they have all their information together. There’s no need to wait until the October deadline.

Taxpayers who requested an extension have until October 17 this year to file their tax return. However, if a taxpayer has all the necessary information to file an accurate return, filing before summer vacation can be a win-win.

“IRS employees continue working hard to process tax returns and address our inventory issues,” said IRS Commissioner Chuck Rettig. “We continue to urge people to file electronically and do it as soon as possible. Even if people have an extension to file until October, sending the tax return as soon as possible can either help get them a refund quicker or it can save them money if they owe by avoiding additional interest and penalties.”

Filing electronically as soon as possible can also help taxpayers who did not file an extension and missed the April deadline to avoid further penalties and interest if they owe taxes.

File electronically and choose direct deposit

Generally, people who choose not to file a tax return because they didn’t earn enough money to be required to file won’t receive a penalty if they are owed a refund. But they may miss out on receiving a refund if they don’t file. The IRS advises individuals who still need to file a 2021 tax return to file electronically and, if due a refund, to choose direct deposit.

Filing electronically is fast, accurate and secure, and when an individual chooses direct deposit, their refund goes directly from the IRS into their bank or financial account getting them their refund in the fastest time possible. If they have a prepaid debit card, they may be able to have their refund applied to the card by providing the account and routing numbers to the IRS. The IRS processes most e-filed returns and issues direct deposit refunds in less than three weeks.

Here’s a tip to help with e-filing a 2021 tax return for those still waiting on their 2020 tax return to be processed: To validate and successfully submit an electronically filed tax return to the IRS, taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return. Those waiting on their 2020 tax return can still file their 2021 return by entering $0 for their 2020 AGI on their 2021 tax return. Remember, if using the same tax preparation software as last year, this field will auto-populate.

Taxpayers who haven’t filed a 2021 tax return yet – including extension filers – can file electronically any time before the October deadline and avoid the last-minute rush to file.

Find help on IRS.gov

People may be waiting to file because they need help or more information, have a more complicated tax situation, or owe taxes. The IRS has resources to help taxpayers get the answers they need so they can file an accurate return. Take the time to file an accurate tax return, but don’t wait until the last minute and risk missing the October deadline.

Tools on the IRS website are easy to use and available 24 hours a day. Millions of people use them to find information about their accounts, get answers to tax questions or file and pay taxes. The online tools include important, special steps related to Economic Impact Payments and advance Child Tax Credit payments.

IRS.gov has many online tools and resources ranging from tax preparation and refund tracking tools, to tax law research tools like the Interactive Tax Assistant and answers for Frequently Asked Questions on dozens of subjects.

Payment options

Submitting a tax return and paying any amount owed as soon as possible can help taxpayers avoid further interest and penalties.

Taxpayers who owe taxes can review all payment options online. These include paying taxes through an Online Account with IRS Direct Pay or paying by debit card, credit card or digital wallet. The IRS has options for people who can’t pay their taxes, including applying for a payment plan on IRS.gov.

IRS Free File

Eligible individuals – including those who requested an extension to file – can use the IRS Free File program to prepare and file their federal tax return for free. The program offers 70% of all taxpayers the choice of several brand-name tax preparation software packages to use at no cost. Those who earned less than $73,000 in 2021 can choose which package is best for them. Some even offer free state tax return preparation. Those that earned more have the option to use IRS Free File Fillable Forms.

MilTax online software is also available for members of the military and certain veterans, regardless of income. This software is offered through the Department of Defense. Eligible taxpayers can use MilTax to prepare and electronically file their federal tax returns and up to three state returns, for free.

Volunteer Income Tax Assistance

The IRS’s Volunteer Income Tax Assistance (VITA) program still offers face-to-face help preparing taxes in some locations in communities across the country. It offers free basic tax return preparation to people who generally make $58,000 or less and people with disabilities or limited English-speaking taxpayers.

The VITA/TCE Site Locator can help eligible taxpayers find the nearest community-based site staffed by IRS-trained and certified volunteers. Taxpayers can use the locator tool to see if there’s an available site still open near them.

Tax professionals

Many people use a trusted tax professional to help guide them through the process of doing their taxes and avoiding errors.
There are various types of tax return preparers, including certified public accountants, enrolled agents, attorneys and many others who don’t have a professional credential.
Because tax professionals have access to an individual’s personal and financial information, it’s important to choose a tax preparer wisely.
For taxpayers who want help with their taxes, this online directory can help them find a tax professional in their area.

Source: IRS

Taxpayers can now track refunds for past two years

The Internal Revenue Service made an important enhancement to the Where’s My Refund? online tool this week, introducing a new feature that allows taxpayers to check the status of their current tax year and two previous years’ refunds.

Taxpayers can select any of the three most recent tax years to check their refund status. They’ll need their Social Security number or ITIN, filing status and expected refund amount from the original filed tax return for the tax year they’re checking.

Previously, Where’s My Refund? only displayed the status of the most recently filed tax return within the past two tax years. Information available to those calling the refund hotline will be limited to the 2021 tax return.

Using Where’s My Refund?, taxpayers can start checking the status of their refund within:

• 24 hours after e-filing a tax year 2021 return.
• Three or four days after e-filing a tax year 2019 or 2020 return.
• Four weeks after mailing a return.

The IRS reminds taxpayers that Online Account continues to be the best option for finding their prior year adjusted gross income, balance due or other type of account information.

“We encourage those who expect a refund, but requested an extension, to file as soon as they’re ready. We process returns on a first-in basis, so the sooner the better,” said IRS Commissioner Chuck Rettig. “There’s really no reason to wait until October 17 if filers have the relevant information to file now. Free File is still available for extension recipients to use to prepare and file their federal tax return for free.”

Electronic filing is open 24/7 and the IRS continues to receive returns and issue refunds. Once taxpayers have filed, they can track their refund with Where’s My Refund?

About the Where’s My Refund? tool

This helpful tool, accessible on IRS.gov or the IRS2Go mobile app, allows taxpayers to track their refund through three stages:

1. Return received.
2. Refund approved.
3. Refund sent.

The tool is updated once a day, usually overnight, and gives taxpayers a projected refund issuance date as soon as it’s approved.

It’s also one of the most popular online features available from IRS. The Where’s My Refund? tool was developed in 2002 and was used by taxpayers more than 776 million times in 2021.

Enhancing taxpayer experience & IT modernization

The IRS continues to enhance the customer experience by enhancing and expanding digital tools that deliver improved services to taxpayers.

“The IRS is committed to identifying opportunities to make improvements in real time for taxpayers and the tax professional community,” said Rettig. “This enhancement to Where’s My Refund? is just one of many.”

Additional refund status information

There’s no need to call the IRS to check on refund status unless it has been more than 21 days since the return was filed or the tool says the IRS can provide more information.

If the IRS needs more information to process the return, the taxpayer will be contacted by mail.

For more information about checking the status of a tax refund, please visit Where’s My Refund?

Source: IRS

The IRS said Thursday that it destroyed approximately 30 million unprocessed information returns because its “antiquated technology” forced it to dispose of the paper documents and vowed to process all such information returns that it received in 2021 and 2022.

The IRS statement was in response to an audit report by the Treasury Inspector General for Tax Administration (TIGTA) that described the document destruction. In that report released Monday, TIGTA recommended that the IRS develop a systemwide strategy to increase electronic filing of tax returns and forms.

The AICPA in a statement Friday called the document destruction “concerning,” considering the IRS’s struggles to process returns timely for the past two years, and called upon the Service to provide further details. The AICPA also noted it has urged the IRS to implement specific recommendations for reducing its backlog more quickly and to provide relief to taxpayers.

“IRS management’s decision to destroy information return documents due to the processing backlog raised numerous questions regarding IRS’s decision-making and risk assessment process,” Ed Karl, CPA, CGMA, the AICPA’s vice president–Tax Policy & Advocacy, said in the statement.

In its audit report, TIGTA noted that paper filings of the documents, including of many that currently cannot be e-filed, impose higher processing costs for the government and deny taxpayers the benefits of e-filing, including convenience, security, and assured delivery. Processing paper filings also imposes logistical challenges, TIGTA reported, including storage and untimely processing.

The IRS’s inability to process backlogs of paper-filed tax returns that had built up during the COVID-19 pandemic contributed to its decision to destroy about 30 million paper-filed information return documents in March 2021, TIGTA reported.

TIGTA also had reported the forms’ destruction in a September 2021 audit report, Effects of the COVID-19 Pandemic on Business Tax Return Processing Operations. In that report, TIGTA said it learned of the incident in its “walkthroughs” of the Service’s Ogden, Utah, processing center, and related some details of its discussion about it with IRS managers.

Information returns are furnished to taxpayers and filed with the IRS, usually reporting income or another tax item that taxpayers then report on an income tax return or retain in their records to support tax return entries. Examples include Form 1099-MISC, Miscellaneous Information.

However, taxpayers in some cases fail to include the reported income or item or do not report it properly. To enforce the proper inclusion of reported items, the IRS conducts what it calls post-processing compliance matches. First, the information returns are scanned into the IRS’s computer systems and then matched against the returns of taxpayers with respect to whom they were filed. One such IRS matching program is its Automated Underreporter Program.

TIGTA reported that when asked about the destruction of the information returns, IRS managers said that the system used to process the returns had to be taken offline to program updates for the next filing season.

In its statement Thursday, the IRS reiterated that rationale, saying the destroyed returns were a small fraction of the 3.2 billion information returns processed in 2020, and most were in the Form 1099 series. All but 1% of those 3.2 billion forms were “matched to corresponding tax returns and processed,” the IRS stated. The remaining 1% were destroyed “due to a software limitation and to make room for new documents relevant to the pending 2021 filing season.”

The IRS also stated that taxpayers and the payers of income that filed the forms have not been subject to penalties resulting from the destruction, and that there were “no negative taxpayer consequences.”

“Broadly, this situation reflects the significant issues posed by antiquated IRS technology,” the IRS stated, adding that in 2020, the Service placed a higher priority on processing tax returns, also backlogged, to issue taxpayer refunds amid the pandemic.

The AICPA’s Karl noted that the AICPA had urged additional taxpayer relief measures during the pandemic, including from penalties.

“We are encouraged that the IRS statement indicated that taxpayers and payors have and will not be subject to penalties,” Karl stated. “However, the AICPA believes that the IRS should be transparent with their remediation strategy to ensure that taxpayers who attempt to be in compliance, and payors who have been compliant with the information reporting requirements, do not have penalties imposed on them in the future.”

The September 2021 TIGTA report identified the higher-priority returns specifically as those in the Form 941 series, on which employers report payroll taxes. Many such returns in 2021 included claims for the employee retention credit.

TIGTA also identified SCRIPS (Service Center Recognition Image Processing System) as the affected system. SCRIPS, according to Internal Revenue Manual (IRM) Section 3.41.269.1 and IRS News Release 93-20, uses imaging and character recognition and is the IRS’s primary means of converting paper information returns into data in a dedicated database. Paper returns are scanned as they are received, but the IRM describes instances in which they cannot be scanned and must be manually processed.

System constraints require the IRS to process the paper information returns by the end of the calendar year in which they were received, the IRS said Thursday, meaning that those received in 2020 could no longer be processed after the 2021 filing season began. The Service also noted that taxpayers received a copy of the destroyed information returns, which they could have used in filing an accurate return.

The decision involved discussions within the IRS’s Wage and Investment and Small Business/Self-Employed (SB/SE) divisions, according to the earlier TIGTA report. The difficulty of retrieving the paper forms was one factor in deciding to destroy them. SB/SE managers conducted a risk assessment to assess what effect the documents’ destruction would have on its post-processing compliance activities.

But details about that risk assessment have not been divulged, as Karl noted in the statement.

“The IRS’s recent statement provided some of the answers, but American taxpayers deserve to know why this decision was made and how it might impact them,” Karl said. “The IRS should continue to operate with transparency on this issue.”

Despite the reasons the IRS had for destroying the information returns, the Service said Thursday it will not do so again in the foreseeable future.

“The IRS is planning to process all paper information returns received in 2021 and 2022,” the statement said.

It was not clear how that statement could apply to information returns received in 2021, given what the IRS said was its inability due to programming constraints to process information returns received in one year after the next year’s filing season begins.

Nor was it immediately clear how many taxpayers may have failed to properly include the reported tax items on the destroyed information returns, or if the IRS has any means or plan to identify those taxpayers and amounts.

Source: The Tax Adviser