Individual Estimated Tax Payments
Many taxpayers, especially those who do not have taxes withheld from their paycheck, are required to make quarterly estimated tax payments. Estimated payments for individual taxpayers are due April 15, June 15, September 15 and January 15 of the next year.
The amount of total estimated taxes paid by the taxpayer for the year must be the lower of 90% of the tax shown on the current year’s return or 100% of the tax from the previous year’s return (110% of previous year’s tax for taxpayers with adjusted gross income of more than $150,000 for married filing joint and $75,000 for single and married filing separate).
Code Sec. 6654 imposes penalties for failures by individuals to pay estimated income tax. The penalty amount is the underpayment rate pursuant to Code Sec. 6621 and is applied to the amount of the underpayment for the relevant period.
The IRS has noted that, over time, more taxpayers have been subject to estimated tax penalties. The number of taxpayers who paid such a penalty increased from 7.2 million in 2010 to over 10 million in 2019.
Individuals who owed in 2021 and did not increase their withholding for 2022, are likely to owe again this tax season. A change in withholding by the taxpayer or the payment of quarterly estimated taxes may prevent penalties when you file your 2022 return.
Income from virtual currencies and gig economy work are taxable, which may affect a taxpayer’s bill, as would other non-work-related financial transactions like capital gains, dividend and interest income, and sales of property. Taxpayers who began a new business may also need to contemplate making estimated payments in 2022.
If you believe you may need to make estimated payments in 2022, contact your Stanfield + O’Dell advisor at the earliest opportunity.