It is hard to believe, but the second quarter of 2022 is almost over, which means it is a good time to review your tax situation to determine whether you need to make a quarterly tax payment. The estimated tax payment for the second quarter is due Wednesday, June 15, 2022.
Do You Need to Make a Payment?
Whether you need to make an estimated tax payment depends primarily on how much income tax has already been paid through withholdings or previous estimated tax payments. Generally, individuals, including sole proprietors, partners, and S corporation shareholders, have to make estimated tax payments if they expect to owe tax of $1,000 or more when they file their return. Here are two ways to avoid an underpayment penalty:
You must pay at least 90 percent of your 2022 tax obligation, OR
100 percent of your 2021 tax obligation. (If your income is over $150,000 ($75,000 if married filing separate), you must pay 110 percent of your 2021 tax obligation to avoid an underpayment penalty.)
Are There Alternative Methods To Pay Income Tax?
Estimated tax payments are just one way to pay what you owe to Uncle Sam. W-2 withholdings is another method, which works very well if you are employed and your W-4 is accurate. An analysis should be completed to ensure proper withholdings or estimated tax payments are being made to avoid an underpayment penalty.
Other Considerations
If you do not have proper tax withholdings during the year, or make appropriate estimated tax payments, you may be subject to an underpayment penalty.
If you are self-employed, don’t forget to calculate the Self Employment tax in your Estimated Payment. The Self Employment tax is essentially your Social Security and Medicare.
If you live in a State with income tax, you may need to make an estimated tax payment to your State, in addition to the payment for the IRS.
TIP: If you do not have the option to increase W-2 withholdings, keep your estimated tax payments in a savings account to avoid undue stress when it is time to pay.
If you need assistance to determine whether an estimated tax payment is necessary or to review the accuracy of your W-2 withholdings don’t hesitate to call our offices for assistance at 707-308-1955. We serve clients nationwide.