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