UPDATE: The Treasury recently announced tax changes and updates in response to COVID-19. Updates include an extension until July 15, 2020 for all taxpayers that have a filing or payment deadline that normally falls on or after April 1, 2020 and before July 1, 2020. Please see the latest information on tax deadlines and stimulus updates related to COVID-19 on the TurboTax Coronavirus Tax Center and detailed information about federal and state tax changes on our Coronavirus blog post.
For those Americans who pay quarterly taxes—or those who don’t but who think they should—understanding the rules governing estimated taxes is vital.
Do you owe estimated taxes?
The most important detail to understand is how much and what type of income places you in the position of paying estimated taxes. Self-employed taxpayers normally must pay quarterly estimated taxes. However, individuals who receive large, untaxed windfalls—from investment gains from stocks for example—may also be required to pay estimated taxes.
- You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.
- Estimated tax payments are made on a quarterly schedule established by the IRS.
Here are the some common myths and misconceptions surrounding quarterly estimated tax payments and IRS Form 1099-MISC.
One of the more serious misconceptions taxpayers may have is that they can just pay their estimated taxes in one lump sum at the end of the year. However, it’s a mistake to think the IRS is OK with an end-of-year payment.
- If you owe more than $1,000, the IRS wants its owed taxes paid during the year.
- Any missed quarterly payment will result in penalties and interest.
- Additionally, waiting until the end of the year to file and pay taxes may lead to other financial issues if you fail to reserve enough funds to satisfy your tax debt.
Another common myth is that if you miss a payment deadline, you can simply wait and pay on the next deadline. If you must pay taxes quarterly, following the schedule is enormously important.
- Missing quarterly deadlines, even by one day, can mean accruing penalties and interest.
- If you miss a payment deadline, your best bet is to send your payment as soon as you can.
- You can also appeal any IRS penalties, if necessary. The IRS would rather collect tax payments than collect penalty payments, so any penalties you incur may be forgiven.
What is a 1099?
Many people misunderstand what a Form 1099-MISC denotes and who receives it.
If you’re considered an employee of a company—whether salaried or paid by the hour—you’ll likely receive a Form W-2. Form W-2 shows how much money has been withheld throughout the year for federal, state, Social Security and Medicare taxes.
- You’ll be responsible for paying half of the payroll taxes due based on your taxable income and it’s withheld from paychecks.
- Your employer pays the other half.
For the income reported on a Form 1099-MISC, however, no tax has been withheld by the party that paid a self-employed individual for work performed. If you’re self-employed, you’re responsible for paying both the employer and employee portions of payroll taxes.
- Some people mistakenly believe that if they receive a Form 1099, it does not necessarily mean the IRS received a copy. That scenario, however, is highly unlikely. If you received a 1099, the IRS most likely received one, as well.
- Similarly, people mistakenly believe that if they did not receive a Form 1099, they don’t have to report the income. The IRS does not care whether you received your Form 1099. If you received taxable income, you must report it.
In fact, beginning back in 2012 (for the 2011 tax year) businesses and corporations must respond, via a line-item question on their tax forms, whether they paid miscellaneous income during the year and whether they issued the appropriate 1099-MISC forms.
The IRS has established four due dates for paying estimated taxes throughout the year. Typically, the due date is the 15th for each of the months in which payments must be made. If the 15th falls on a weekend or a federal holiday, however, the due date is moved to the following business day.
Here is the IRS quarterly estimated tax timeline :
- For income received Jan. 1 through March 31, estimated tax is due April 15 (July 15 in 2020).
- For income received April 1 through May 31, estimated tax is due June 15 (July 15 in 2020).
- For income received June 1 through Aug. 31, estimated tax is due Sept. 15.
- And for income received Sept. 1 through Dec. 31, estimated tax is due Jan. 15.
A payment not postmarked on or before the due date will be considered late and you will likely be penalized.
Brought to you by TurboTax.com
The W-4 Form Changed in Major Ways — Here's What's Different
In 2020, the W-4 form changed to help individuals withhold federal income tax more accurately from their paychecks. Learn everything you need to know so you can update your W-4 with confidence.
Getting Married: What Newlyweds Need to Know
Getting married? Have you thought about how it will impact your taxes? You may need to select a tax filing status, adjust your withholding and sell your home.
An Early Withdrawal From Your 401(k): Understanding the Consequences
Cashing out or taking a loan on your 401(k) are two viable options if you're in need of funds. But, before you do so, here's a few things to know about the possible impacts on your taxes of an early withdrawal from your 401(k).
Guide to Unemployment and Taxes
The IRS considers unemployment compensation to be taxable income—which you must report on your federal tax return. State unemployment divisions issue an IRS Form 1099-G to each individual who receives unemployment benefits during the year.
Source: Read Full Article