The Internal Revenue Service (IRS) has notified taxpayers paying estimated taxes that the third quarter payment filing deadline is September 15, 2022.
Estimated taxes generally apply to any type of taxable income for which their employers may not normally withhold taxes from their wages. This includes earned income, dividend income, rental income, interest income and capital gains.
What you need to know about estimated tax
The US tax system it operates on a pay-as-you-go basis, where taxpayers are required to pay most of their tax during the year as they earn or receive income. Therefore, non-withholding individuals may be required to make quarterly estimated tax payments.
According to the IRS, taxpayers are required to make a payment every quarter. The first installment was on April 15, 2022. The second is on June 15, 2022. The third is on September 15, 2022. And the final one is on January 12, 2023.
Estimated tax is a quarterly installment of tax for the year based on your reported income for the period. Estimated taxes mainly apply to small business owners, freelancers, and independent contractors who don’t have taxes automatically withheld from their paychecks like regular employees do.
More specifically, taxpayers are subject to estimated tax payments if they expect to owe at least $1,000 in taxes for 2022 after deduction of withholding and tax credits.
Withholding and credits will be the lesser of 90% of the tax shown on their 2022 tax return or 100% of the tax shown on their 2021 tax return. Their 2021 tax return must cover all 12 months .
However, special rules may apply to certain groups of taxpayers, such as farmers, fishermen, victims and victims of disasters. This can be extended to those who have recently become disabled, recent retirees and those who receive income unevenly throughout the year.
Calculating your estimated tax
You can use Form 1040-ES to figure your estimated tax. You can then pay your taxes by mailing a check or paying by money order made payable to the United States Treasury Department.
However, a faster and easier option is available through the Electronic Federal Tax Payment System (EFTPS). They can do this by securely logging into their IRS Online Account or using IRS Direct Pay to submit a payment from their checking or savings account. They also have the option to pay using a debit, credit card or digital wallet. However, paying taxes by debit or credit cards will incur additional fees from the payment processor.
If you receive income unevenly throughout the year, you may be able to vary the payment amounts to avoid or reduce the penalty by using the annual installment method.
You can also avoid paying estimated taxes in one of two ways. The first is to have a working spouse who agrees to increase his or her salary withholding to cover your liability, provided you file a joint return. The second is to choose an S corporation status if you are a limited liability company (LLC) where you can receive a salary from the business from which it can be withheld.
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