If you are self-employed, a freelancer, or a gig worker and your employer does not withhold taxes from your paycheck, you are required by law to pay an anticipated quarterly tax payment. These individuals must proactively pay their income taxes and self-employment taxes to the IRS (Internal Revenue Service) four times a year rather than having this amount automatically withdrawn from their paychecks through Quarterly Estimated Tax Payments.
For self-employed individuals, quarterly anticipated tax payments serve as a substitute for traditional withholding. Self-employed people must make these payments to fulfill their annual tax obligations, as their employers do not handle their taxes.
What Happens If I Miss a Quarterly Estimated Tax Payment?
You may have to face penalties and other financial consequences from the Internal Revenue Service (IRS) if you fail to pay quarterly estimated taxes. If you do not pay enough tax during the year through withholding or projected tax payments, you will be penalized for underpayment of expected tax.
An individual’s penalty might be as high as three times their outstanding tax bill, multiplied by the time for which their payment was overdue, with interest. Simply put, the possibility of penalties increases proportionately when payment is delayed.
Here are some of the consequences you may face:
- You could face a penalty of 0.5% of the total amount due, up to 25%, imposed by the IRS.
- The unpaid debt will be subject to interest at rates that are subject to change.
- The precise amount of the late payment penalty could change due to fluctuations in IRS interest rates.
You can do one of two things if you don’t know how much money is due in unpaid quarterly taxes:
- Go ahead and ask the IRS to figure it out for you. If you fail to include the appropriate amount in your quarterly tax return, the IRS will send you a bill for the due amount.
- Use Form 2210 for individuals or Form 2220 for corporations to determine your penalty.
How Do You Calculate Your Quarterly Tax Payments?
Estimating your annual tax liability, which includes income and self-employment taxes, is the first step in calculating your quarterly tax payments.
To calculate your quarterly tax payments, follow this simple guide:
- Assume you have earned an income that is taxed for the year.
- Use the projected taxable income to determine your income tax liability.
- Find out how much you owe in self-employment taxes, which includes Medicare and Social Security.
- Add your income and self-employment taxes together to get your annual tax bill.
- The amount you need to pay each quarter can be calculated by dividing your total tax liability by four.
A different option would be to use the IRS Form 1040-ES worksheet as a calculator. People can use this form to understand how much tax they owe and how much they need to pay each quarter.
Beem’s Tax Calculator is a simple and accurate way to estimate your federal and state tax refund. It will help you maximize your tax benefits and ensure correct filings.
Where Can I Get Help With My Quarterly Estimated Tax Payments?
There are several services available to help you with your quarterly anticipated tax payments:
- You may find a wealth of material, including forms, instructions, and publications, on the IRS website that pertain to anticipated tax payments.
- For individualized help with tax preparation and anticipated payments, consult a tax professional, such as a certified public accountant (CPA), enrolled agent (EA), or tax preparer.
- Individuals can estimate their quarterly tax payments using various online tools and calculators that account for income, deductions, and credits.
Read Related Blogs: What Happens If You Overpay Estimated Taxes?
Can I Avoid Penalties If I Miss a Quarterly Estimated Tax Payment?
Even though penalties may be incurred for failing to pay quarterly estimated taxes, there are situations in which fines can be mitigated or even eliminated. Taxpayers may be able to avoid penalties by taking advantage of the many safe harbor provisions of the IRS:
- After deducting withholdings and credits, your tax liability will be less than $1,000.
- If your tax payment for the current year was at least 90% or 100% of the amount reported on your return from the prior year, whichever is less, you are eligible for a refund.
- You can avoid or minimize the penalty by annualizing your income and making unequal payments, if your income fluctuates during the year.
What Should I Do If I Miss a Quarterly Estimated Tax Payment?
It is critical to act quickly to resolve the issue if you realize you still need to submit a quarterly anticipated tax payment. Here is what you can do:
- If you want to keep the penalties and interest minimum, send your overdue payment to the Internal Revenue Service (IRS) immediately.
- If you cannot pay the entire amount, you can make partial payments to lower the penalty.
- Please review the provisions on safe harbors. See if any penalty-free ‘safe harbor’ rules might apply to you.
- Consider asking the IRS for a penalty waiver if there’s a good reason for your missed payment.
Conclusion
In conclusion, quarterly estimated tax payments are not just a legal obligation but an important aspect of financial responsibility for self-employed individuals and freelancers. While navigating the complexities of the tax system can be daunting, assistance services are available to provide guidance and support every step of the way.
Using assistance such as Beem to file taxes can maximize your refund at a flat price of $9.991. There will be no further fees.
