What you need to know if you pay estimated taxes
According to USA Internal Revenue Service, estimated tax is a type of payment made by employees whose earnings do not fall under the category of withholding tax. This type of tax is paid to the IRS as one gets the income. This is unlike other types of taxes which require the filing of tax returns at the end of financial year. Employees are the ones paying the tax directly. Other types of taxes are directly deducted by the employer.
It can also happen when employees decide to make their payments in case of situations which will make their withholdings enough to pay all of their final tax amounts. The IRS recommends that estimated tax payments should come in 4-quarterly installments. In case of an overpayment, the employees receive the tax refund of the excess amounts. Some of the factors which employees need to consider during payment of estimated taxes are as discussed below
The Category Of Estimated Tax Payer
For individuals to pay estimated tax, their annual tax liability should be at least $1,000 or more. In case one owed the IRS more than $1,000 during the previous year filing of returns, the employees will either have their paychecks possessing more withheld tax, or they will be required to pay estimated tax during the following fiscal year. This group of people includes; people who are self-employed, single business owners, corporations, partners, owners of taxes for the past year.
The Calculation Of Estimated Tax
One should be able to calculate the amount of estimated tax required to pay. It is an approximate amount which can be obtained by use of the approximating applications. These include Tax Calculator by Tax Slayer, Tax Caster by Intuit Tax Mode by Sawhney Systems, and Total Tax Insights by the American Institute of CPAs. Each of the above applications requires one to first compile his income, deductions and paid taxes before using it.
However, the majority of the people use their payments of the previous fiscal year in trying to approximate the amount they will likely owe the IRS for the following year. Payment of estimated tax is in 4-quarterly periods with each period having its payment deadline. The employees must meet the deadline, failure of which will lead to IRS imposing penalties on them.
Payment of estimated tax is only by a group of people, and that payments come in 4 quarterly periods. This payment is made within a time frame which should be strictly adhered to by employees or else the IRS will penalize them. In case one misses to pay a few installments for estimated tax, he/she should still try to pay in time.