In a timely reminder from the Internal Revenue Service (IRS), taxpayers, especially small business owners such as gig workers, sole proprietors, retirees, partners, and S corporation shareholders, are urged to ensure they meet the third quarter tax payment deadline of September 15, 2023.
Who Needs to Make Quarterly Payments?
Primarily, those not undergoing standard withholding need to be vigilant about these quarterly estimated tax payments. The IRS has specified two conditions to determine if you must make these payments:
- If you anticipate owing a minimum of $1,000 in taxes for 2023, post all tax credits and withholding deductions.
- Your withholdings and tax credits for 2023 are less than either 90% of your expected tax for 2023 or 100% of the tax reported on your complete 2022 return spanning 12 months.
The Advent of 1099-Ks for 2023
A noteworthy change is that more taxpayers will receive 1099-K forms starting January 2024 for payments received in 2023. This impacts those paid over $600 via online platforms or payment cards, including individuals with side hustles or online businesses. However, the threshold for third-party reporting via the 1099-K doesn’t alter the existing tax calculations or income qualifications. For more information, taxpayers can refer to the “Understanding Your Form 1099-K” section on the IRS website.
How to Calculate Your Estimated Tax
To figure out your estimated tax for 2023, you need to estimate your expected Adjusted Gross Income (AGI), taxes, taxable income, credits, and deductions. Using 2022 as a benchmark can simplify this process. Fortunately, the IRS has provided easy-to-follow tools on their website, such as the Tax Withholding Estimator and the IRS Interactive Tax Assistant.
Penalties for Underpayment
The IRS cautions against underpaying taxes. Regardless of the method of payment, underpayment can result in a penalty. Missing or late tax payments can lead to penalties even if a taxpayer is entitled to a refund upon filing the return. To verify if a penalty applies, taxpayers can consult Form 2210. However, a penalty waiver might be available if the underpayment arose due to unique circumstances and not intentional neglect.
It’s crucial to note that specific rules might be relevant to unique groups, such as farmers, fishermen, recent retirees, and individuals who receive uneven yearly income.
Payment Methods and Recommendations
For ease and security, the IRS advocates for electronic payments. Taxpayers can utilize their IRS Online Account or IRS Direct Pay for payments directly from their bank accounts. Other options include payment via debit card, credit card, digital wallet, or the Electronic Federal Tax Payment System (EFTPS). However, a processing fee, levied by payment processors and not the IRS, applies to card payments. Check or money order payments addressed to the “United States Treasury” are also acceptable.
The IRS strongly encourages taxpayers, especially those with irregular income not subject to standard withholdings, to make estimated tax payments consistently. This proactive approach aids in avoiding unexpected tax obligations. Lastly, mark your calendars. The fourth and last estimated tax payment for 2023 is due on January 16, 2024.
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