IRS Reminder: Third-quarter Estimated Tax Payments Due on September 15

The Internal Revenue Service (IRS) has dropped a reminder for all the US-based estimated taxpayers about the deadline, i.e. 15th of September 2022,  for the submission of their third-quarter payments. The United States workers who are self-employed, investors, retirees, and others with their income subject or not subject to withholding usually make these estimated tax payments.

The country has a pay-as-you-go tax system, which means the citizens have to pay the tax liability all year long instead of one amount when filing a return. A tax law claims that you must pay 90% of the tax money you owe during the year. If not, you will be liable for penalty for underpaying when filing your return.

Who Have To Pay The Quarterly Due

When you are earning money that is not subject to withholdings, you probably need to make quarterly payments. The general rule is that you should make estimated tax payments if you expect to owe $1,000 or more to the IRS after deducting and applying for credits. 

It is common if your income comes  from the following sources: Self-employment, Alimony, Unemployment, Social Security, Interest, Dividends, Capital Gains, Prizes, and Awards.

This tax bill of$1000 or more indicates that you are not having enough income withheld during the year to cover your liability. Consequently, you could owe a penalty if you do not make quarterly payments.

If you want to know whether you should associate yourself with the community of taxpayers or not, you should check the Form 2210 of Underpayment of Estimated Tax By Individuals, Estates, and Trusts.  

Special Rules For Some Groups of Taxpayers

There is a list of special rules applicable to a group of selective occupations or individuals like casualty, fishing, farming, disaster survivors, retirees, or recently disabled people. You can find the detailed information about estimated tax rules on the Publication 505, Tax Withholding And Estimated Tax, published by the official website of the Internal Revenue Service (IRS). If you want to know deeper about who should pay the taxes and who should be exempted, then you will find all the details about Estimated Tax For Corporations, Form 1120-W, Estimated Tax For Individuals, and Form 1040-ES here.

You probably owe estimated tax payments to your state unless you are a resident of a state with no income tax. Be sure to check with the appropriate tax agency in your state, as due dates for state payments may or may not coincide with the federal dates. 

How to Figure Estimated Tax

If you want to figure your estimated tax, then you must know certain things like Adjusted Gross Income (expected AGI), taxes, your taxable income, credits, and your deductions for the respective year. We suggest that you use deductions, credits, and your income of 2021, either through 2021 federal tax return or Form 1040-ES, to figure the estimated tax 2022.  

Underpayment Penalty

As a taxpayer, you might have to pay the penalty if you underpaid the taxes. Whether through withholding or tax payments, this applies to both of them. For late estimated tax payments, there might apply a penalty if you are due a refund when filing the tax return.

In general, there is the option of not paying a penalty for the taxpayers if they meet any of these conditions:

• In tax with their tax return, they owe less than $1,000.
• They paid the smaller of these two amounts, throughout the year: a minimum of 90% of the tax of the current year, or 100% of the tax can increase to 110% based on adjusted gross income as shown on the tax return for the prior year.

To check if taxpayers owe a penalty, they should use Form 2210. The IRS might waive the penalty if someone underpays because of peculiar circumstances and not willful neglect. Examples include:

• Casualty, disaster, or another unusual situation.
• The individual retiring after the age of 62 during a tax year when estimated tax payments applied.
• The individual gets disabled during a tax year when estimated tax payments applied.

Payment Method

The best way to make an online payment is directly on the IRS website at https://www.irs.gov/payments.

You can use the Form 1040-ES for calculating and paying the taxes. The ways to pay estimated taxes include check, cash, money order, credit card, debit card.

The Electronic Federal Tax Payment System (EFTPS)  is another option out of the many online payment options. In the instructions for Form 1040-ES, the various payment methods have been described. The fourth and final estimated tax 2022 payment is due 7th January 2023.