IRS Tax Withholding Estimator
Use the link below at the IRS Website for your current tax year estimate to ensure your tax withholding is sufficient. The IRS has recently changed their tax withholding estimator to help taxpayers estimate their taxes and pay them sufficiently before each tax year ending.
The Estimated Taxes & Taxpayer's Duties
The Federal Tax System and almost all State Tax Systems are Pay-As-You-Go systems so your income taxes must be paid as you earn or receive income during the year, either through Salaries/Wages (W-2) withholding and/or estimated tax payments. Per IRS Publication 505 (Tax Withholding and Estimated Tax), Individuals and Sole Proprietors, Partners, and S-Corporation Shareholders, are required to make their estimated tax payments quarterly if they expect to owe tax of $1,000 or more at the end of each tax year when their tax returns for that year are filed. Corporations have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed. If you don’t pay enough taxes through your W-2 withholding and estimated tax payments, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.
The Federal and State Taxing Authorities have strictly enforced penalties for taxpayers for not paying sufficient estimated taxes throughout the tax year. In general, most taxpayers, at the time of tax filings, may avoid penalties if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller. If the amount tax due is large, taxpayers may be charged with penalties. Those penalties may include but not limited to late filings, non-filings penalties, underpayment penalty, interests and non-payment penalty, etc. In some situations, the combined amount of all penalties plus interests is large enough to shock taxpayers when taxpayers do not comply with tax laws. Some taxpayers cannot pay off the tax debt at once. Over the time, just like credit card debts, their financial tax burden grows larger. Please be advised that it is taxpayer's duties to pay their estimated taxes every quarter and on time.
When you own a business (Sole Proprietorship, LLC, Partnership, S-Corporation) and earn income, these requirements are especially crucial because nobody withhold your income taxes or Medicare or Social Security taxes for you throughout the year. Unless you set up an effective payroll system along with submitting sufficient quarter income taxes to Federal and State Taxing Authorities, you are really short of large amounts of taxes at the end of each tax year. This requirement applies to any other taxpayers who expect to sell properties or businesses with a capital gain. Taxpayers should be in compliance with Federal and related State tax laws. If you are unsure of what to do with your situation, discuss and engage a tax planning with your licensed tax advisor. As your trusted practicing tax professionals, we provide advices, planning and guidance to help you go through your complex tax situation.