The Internal Revenue Service (IRS) has warned many taxpayers about the third quarter payment due by the 16th of September. The payment has to be made by some taxpayers to avoid penalties from the IRS. As a taxpayer, it is essential to know about people who are involved and could possibly be affected, consequences of missing this deadline as well as the methods to make these payments in a way that is compliant with IRS guidelines.
What are estimated tax payments
Estimated taxes are income tax payments which people pay to the IRS periodically that are not meant for withholding. Some of such incomes would include earnings from self-employment, rental income, interest, dividends and capital gains. If you would owe at least $1,000 after deducting your withholding and refundable credits, then in general you are required to make estimated payments.
Usually these payments are done four times a year, that is, in April, June, September and January of the following year. Failing to pay or underpaying these taxes may lead to interest charges or penalties.
How to calculate your estimated tax payment
Calculating what you owe towards tax is important to escape any paying penalties. The IRS has Form 1040-ES, this is an estimation of tax aimed at individuals and there is a worksheet to assist you in determining the amount that you pay for taxes. You will be required to make projections concerning your income, deductions as well as credits, besides listing any taxes paid before. The other option that you have is to update your estimations every year. This is important if you have experienced changes in your earnings.
There are several ways through which taxpayers can determine the estimated payments they need to remit including using the IRS online tax withholding estimator tool. This could also mean consulting a qualified expert in matters relating to taxation especially when your financial circumstances are complicated or if there are significant changes in your income.
Who needs to make a payment by September 16
The September 16 deadline mainly affects taxpayers who do not have taxes withheld from their income or have too little withheld throughout the year. This typically includes self-employed individuals, freelancers, independent contractors, investors, retirees, and others whose income is not subject to withholding.
For these taxpayers, the IRS requires estimated tax payments to be made quarterly. This ensures that they are paying taxes throughout the year, just like wage earners whose taxes are automatically withheld from their paychecks. The September 16 deadline marks the due date for the third quarterly estimated tax payment for the 2024 tax year.
Consequences of missing the September 16 Deadline
Failing to make the necessary estimated tax payment by the September 16 deadline can lead to several consequences. The IRS may impose penalties for underpayment of estimated taxes, which are calculated based on the amount owed and the length of time the payment is overdue. The penalty rate can vary and is typically higher than most interest rates, adding a financial burden to those already struggling with tax payments.
Moreover, interest accrues on any unpaid amount from the due date of the payment until it is paid in full. The longer the payment is delayed, the higher the interest and penalties that can accumulate, potentially leading to a substantial sum that must be paid later.
How to make the payment
Making your estimated tax payment is straightforward, with multiple options available. The IRS offers several methods for making payments which includes:
- Online: The IRS Direct Pay service allows you to pay directly from your bank account. Additionally, you can use the Electronic Federal Tax Payment System (EFTPS) or the IRS2Go mobile app for secure payments.
- By check or money order: Taxpayers can also mail a check or money order to the IRS. It’s essential to include your name, address, Social Security number, and a daytime phone number, along with Form 1040-ES payment voucher.
- Credit or debit card: Payments can be made using a credit or debit card, although processing fees may apply.
Make sure to choose the payment method that is most convenient for you and allow sufficient time for the payment to reach the IRS before the September 16 deadline.
What to Do if you can’t pay the full amount
If you cannot pay the full estimated tax amount by the deadline, it is still advisable to pay as much as you can to reduce penalties and interest. The IRS provides options for taxpayers experiencing financial difficulties, including short-term payment plans or installment agreements. These options can help you manage your tax debt more effectively while minimizing additional penalties.
Steps to take after making the payment
After making your estimated tax payment, keep records of your payment confirmation and any correspondence from the IRS. Regularly review your financial situation and adjust your future estimated payments if necessary. Staying updated about your tax obligations throughout the year can help prevent surprises when filing your annual return.
For more information about the September 16 deadline, visit the IRS website.
