The Internal Revenue Service (IRS) advised people on Monday to investigate their alternatives to avoid being exposed to anticipated tax penalties, which apply when someone fails to pay their taxes on time.
Taxpayers who underpaid their taxes in 2021 can still make quarterly estimated tax payments to avoid receiving a surprise tax charge at the end of the year. Making a payment for the fourth quarter of 2021 is due on January 18, 2022, and the deadline for the third quarter of 2021 is December 31, 2021.
Income taxes are calculated on a pay-as-you-go basis, which means that taxpayers must pay the majority of their taxes throughout the year as income is made or received. According to the Internal Revenue Service, there are two ways to accomplish this:
Withholding from salaries, pension payments, and other government payments, such as Social Security benefits or unemployment compensation, is common practice in the workplace. This is how the vast majority of individuals pay their taxes.
Making quarterly anticipated tax payments to the Internal Revenue Service (IRS) throughout the year. Self-employed individuals and investors, among others, are frequently required to pay tax in this manner.
Either type of payment can help you avoid receiving an unexpected bill at tax time, as well as the associated penalty that is frequently applied.
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If a taxpayer fails to make the required quarterly anticipated tax payments earlier in the year, making a contribution to cover these missing payments as soon as possible will usually reduce, and in certain cases may even eliminate, any potential penalty.
It is possible that people who owe tax when they filed their 2020 tax return will be in the same situation when they file their 2021 tax return again. Especially if they fail to take action to avoid another shortage by increasing their withholding for the year 2021, this will almost certainly be the case.
These individuals frequently include people who formerly itemized but are now using the standard deduction, two-wage earner households, employees with non-wage sources of income, and those with complicated tax situations.
Parents who received advance payments for the Child Tax Credit during 2021 but do not expect to qualify for the credit when they file their 2021 tax return may also be required to make an estimated tax payment.
The quickest and most convenient method to make an anticipated tax payment is to do it electronically using IRS Direct Pay. Taxpayers who want to make a payment in advance of the January deadline can do so.
Although it is too early to file a tax return for the year 2021, it is never too early to prepare for the tax-filing season that lies ahead.