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Tag: estimated tax payments

Estimated Taxes and Withholding – Five Things Everyone Should Learn

There can be some confusion on who needs to pay estimated taxes and who does not.  The basic rule is that if the IRS does not receive enough tax from you or from your employer on your behalf through the year, you need to pay estimated tax payments to avoid being assessed a penalty.

Employees receive a Form W-2 during tax time pay federal taxes on their income through their employer withholding funds from their paycheck. That employer is responsible for submitting that withholding amount to the IRS.  For self-employed individuals that are paid without having taxes withheld, you receive a Form-1099 at the end of the year.  You are considered an independent contractor.  You are required to make estimated tax payments since you are not submitting any income tax throughout the year another way.

Taxpayers should make estimated tax payments if:

  • The tax withheld from their income does not cover their tax for the year.
  • They have income without withholdings. Some examples are interest, dividends, alimony, self-employment income, capital gains, prizes or awards.

Here are five actions taxpayers can take to avoid a large bill and estimated tax penalties when they file their return. They can:

  • Use Form 1040-ES. Individuals, sole proprietors, partners and S corporation shareholders can use this form to figure estimated tax. This form helps someone calculate their expected income, taxes, deductions and credits for the year. They can then figure their estimated tax payments.
  • Use the Withholding Calculator on IRS.gov. This tool helps users figure how much money their employer should withhold from their pay so they don’t have too much or too little tax withheld. The results from the calculator can also help them fill out their Form W-4. Taxpayers whose income isn’t paid evenly throughout the year, can check Publication 505 instead of the calculator.
  • Have more tax withheld. Taxpayers with a regular paycheck can have more tax withheld from it. To do this, they must fill out a new Form W-4 and give it to their employer. This is a good option for taxpayers who participate in a sharing economy activity as a side job or part-time business.
  • Use estimated payments to pay other taxes. Self-employed individuals can make estimated tax payments to pay both income tax and self-employment tax. Self-employment tax includes Social Security and Medicare.
  • Use Form W-4P. Generally, pension and annuity plans withhold tax from retirees’ payments. Recipients of these payments can adjust their withholding using Form W-4P and give it to their payer

If you are an independent contractor such as a truck driver, construction worker, consultant, delivery driver, rideshare driver, etc., and you were not aware of how estimated taxes work,  you may already be in jeapoardy with the IRS.  Consult a settlement officer at Republic Tax Relief today and they can conduct a free interview to find out if we can help you get back on track with the IRS.

By Teresa BuelnaTrending Tax Topics

Helpful Tax Tips for Students Seeking Summer Employment

Schools Out For the Summer!!!!!  However nowadays more teens are opting for summer jobs instead of trips to the lake, putting toes in the sand at the beach, or general Netflix binging. This is a great time for them to learn (at least in a small timeframe) about the working world as well as the impact that paying taxes has on their local community, their state and nation.

Here’s 7 tips for your newly-ordained working teen to roll their eyes over.

1. One thing you’ll need to get used to is that the “hourly” pay you are getting (which may not be much more than minimum wage) will look even smaller once your taxes are removed from your paycheck. Don’t worry, see #7, you may get most of it back.

2. If you’re doing work for someone that pays you without taking taxes out, be prepared that to set aside a portion of that check into a savings account to send back to the IRS on a quarterly basis (every 3 months). This is called paying estimated tax.  The law allows for businesses to pay short-term workers as independent contractors and they aren’t repsonsible for sending off that money to the IRS, the worker is. When tax time arrives you’ll receive a report of what that business paid you on Form 1099.  The good news is that the estimated tax payments you sent off the IRS may be refunded to you if you paid too much or if you had some out-of-pocket expenses that you can put deduct from your overall income, allowing you to owe less.

3. Keep in mind that all tip income is taxable. If you get tips, you must keep a daily log so you can report them. You must report all of your yearly tips on your tax return.

5. If you’re in ROTC, your active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training isn’t taxable.

6. You may not earn enough from your summer job to owe income tax. But your employer usually must withhold Social Security and Medicare taxes from your pay.

7. You may not earn enough money from your summer job to be required to file a tax return. Even if that’s true, you may still want to file. For example, if your employer withheld income tax from your pay, you’ll have to file a return to get your taxes refunded.

By Teresa BuelnaTrending Tax Topics