You’ve been working at your current job since last December, but due to certain production irregularities, you were only paid $300 a month for the first six months, and taxes were not withheld. Although you were able to make the low income work at the time, you’re extremely thankful that you’re now making closer to $2,000 a month.
When you did your taxes last year, you knew this year’s lower income would affect the first half of the year. Since you didn’t want to get behind on your taxes for this year, you opted to fill out the form which would calculate whether you would have to make quarterly payments.
After filling out the form to the best of your abilities, the IRS website indicated that you wouldn’t be accountable for quarterly payments. However, now that you’re making more money, you have no idea whether you’re required to make payments. You also don’t know if you’ll be penalized for not filing for April and June, even though the form initially told you they wouldn’t be required.
At this point you’re just confused about the entire ordeal, and not even sure what is the point for forced quarterly taxes.
What Are Quarterly Taxes?
Quarterly taxes are basically a way for you to stay current with your taxes when your pay doesn’t accommodate weekly, biweekly, or monthly withholding. The Internal Revenue Service (IRS) considers it as a sort of required “pay-as-you-go” system.
The IRS and your state’s treasury department require that you pay taxes almost as quickly as you earn your income. However, if taxes aren’t withheld from wages or other payments, then the IRS doesn’t get your money quickly enough. There is a substantial risk that a wage-earner who doesn’t pay in advance for his taxes may not have enough ready cash to settle his tax bill when it comes due. Therefore, in order to keep you up to date and keep a consistent, predictable flow of money going to the government, federal and some state tax authorities require some workers to make estimated tax payments each quarter.
In addition to having to pay quarterly, if your estimates were less than the IRS predicted, if you filed late (or not at all) during the year, or if you made a mistake with your estimates, then you could be liable for additional penalty charges.
How Do Quarterly Tax Rules Affect You?
Since some exceptions (known as “safe harbor rules) apply to the quarterly tax requirements, it can be difficult to know if you are subject to the additional filings. In general, to avoid penalty charges, you should take the time to file if you fall into any two of these three categories:
- Taxes aren’t routinely subtracted from your paychecks.
- You expect to owe at least $1,000 after subtracting your withholding and refundable credits.
- You expect your withholding and refundable credits to be less than 90 percent of the tax to be shown on this year’s tax return, or 100 percent of the tax shown on your previous year’s tax return (your previous year’s return must cover all 12 months).
Avoiding an Audit
Filing taxes once a year is enough to drive anyone a bit crazy, but filing them four times could drive someone completely bonkers. Allow us to help answer any legal questions you may have about your quarterly payments, as well as discuss any taxation concerns you may have. Call today and see how our experience and know-how can help make filing far less taxing than you can even imagine. Call now to let us help you avoid a painful audit.
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