The U.S. Internal Revenue Service (IRS) reminded taxpayers that the estimated tax-payment deadline for the second quarter of 2024 is due within a week.
Taxpayers expected to have a tax liability of $1,000 or more when they file their annual return must make estimated tax payments on a quarterly basis. For the second quarter, the deadline is set for June 17, the IRS said in a Monday press release. “Taxpayers making estimated tax payments should consider this deadline to avoid falling behind on their taxes and facing possible underpayment penalties. And the IRS reminds taxpayers that third-quarter payments are due Sept. 16, and the final estimated tax payment for tax year 2024 will be due on Jan. 15, 2025.”
Taxes follow a pay-as-you-go schedule; they have to be paid as income is earned during a year. The two ways to do this are by withholding taxes from wages, pensions, or government payments like Social Security, and by making estimated quarterly payments throughout the year.
Quarterly estimated taxes are usually paid by self-employed individuals, retirees, investors, businesses, corporations, and people who do not have their taxes withheld.
If sufficient taxes are not withheld from taxpayers who receive salary, pension, or other income, these individuals must also make estimated tax payments.
To avoid the situation, employed taxpayers can ask their employer to withhold a larger amount from their earnings through submitting a new Form W-4, Employee’s Withholding Certificate. The IRS recommends taxpayers to complete a new form W-4 annually as well as when their personal and financial situations change.
In order to help people assess whether they are required to make estimated tax payments for 2024, the IRS has created the Interactive Tax Assistant tool.
While using the tool, taxpayers are advised to keep their 2023 income tax return and an estimate of their 2024 income ready, with the questionnaire taking roughly 10 minutes.
Individuals also use the Tax Withholding Estimator tool to check whether the right amount of taxes are being withheld from their incomes. The tool shows how refunds are affected by the withholding amount. Taxpayers should have their pay stubs and the most recent tax return ready while using the tool.
Form 1099-K, Underpayment Penalties
The IRS also reminded taxpayers who work part time or have side hustles to report their incomes on Form 1099-K.“Taxpayers earning income not subject to withholding are encouraged to consider making quarterly estimated tax payments during the year to stay current and avoid an unexpected tax bill,” the agency said.
“Remember, all income is taxable unless it is specifically excluded by tax law. Taxpayers should report any profits from selling goods or services, regardless of if they receive a Form 1099-K.”
Until tax year 2023, income received from Form 1099-K activities had to be reported only when the taxpayer received more than $20,000 through these activities and carried out over 200 transactions.
The IRS has the ultimate goal of bringing down the reporting threshold for income to $600 as required by the American Rescue Plan. As part of transitioning, the IRS intends to bring down the threshold from $20,000 to $5,000 for tax year 2024.
Failure to pay estimated taxes on time could result in underpayment of taxes, which then attracts penalties. The agency advises taxpayers to “pay most of their taxes during the year, owing less than a $1000 when filing their return.”
“Generally, for 2024 that means paying at least 90 percent of the tax owed on their 2024 return, or at a minimum 100 percent of the tax shown on their year 2023 tax return.”
There are some groups that are exempted from penalties related to underpayment of estimated taxes like fishermen, farmers, disaster victims, recent retirees, people who received uneven income for the year, and individuals who recently became disabled.
As for penalties, the agency charges a failure-to-pay penalty of 0.5 percent per month for the portion of the tax that remains unpaid. This is subject to a maximum penalty of 25 percent.
For failure-to-file, a penalty of 5 percent will be charged per month, up to a maximum of 25 percent. If the filing is more than 60 days late, there is a minimum penalty of $485 or 100 percent of the tax owed, whichever is less.
Taxpayers who are not able to pay their dues in full can pay a part and then choose a variety of payment options to pay off the remaining balance, including getting a loan, the agency noted.
