The United States workers who are self-employed, investors, retirees, and others with income not subject to withholding that third-quarter estimated tax payments for 2020 are due September 15. Their federal tax liabilities like Income Tax, Social Security, and Medicare are covered in quarterly estimated payments.
The country has a pay-as-you-go tax system, which means the citizens have to pay the tax liability all year long instead of one huge amount when filing a return. There is also the tax law that says you must pay 90% of the tax money that you owe during the year or you can face a penalty for underpaying when filing your return.
Who Have To Pay The Quarterly Due?
When you are earning money that is not subject to withholdings, you probably need to make quarterly payments. The general rule is that you should make estimated tax payments if you expect to owe $1,000 or more to the IRS after deductions and credits have been applied.
This is common if you have income from the following sources: Self-employment, Alimony, Unemployment, Social Security, Interest, Dividends, Capital Gains, Prizes, and Awards.
This large tax bill i.e., $1000 or more indicates that you are not having enough income withheld during the year to cover your liability. Consequently, you could owe a penalty if you do not make quarterly payments.
Special Rules For Some Groups of Taxpayers
If a minimum of two-thirds of your gross income is from fishing, or farming you have the option of making just one estimated tax payment for the 2020 tax year by January 15, 2021. You do not need to make any estimated tax payments if you file your tax return of 2020 by the 1st of March, 2021, and pay all the tax you owe at that time.
You probably owe estimated tax payments to your state, unless are a resident of a state with no income tax. Be sure to check with the appropriate tax agency in your state as due dates for state payments may or may not coincide with the federal dates. Publication 505 has more information.
As a taxpayer, you might have to pay a penalty if you underpaid the taxes. Whether through withholding or through tax payments, this applies to both of them. For late estimated tax payments, there might apply a penalty if you are due a refund when filing the tax return. In general, there is the option of not paying a penalty for the taxpayers if any of these conditions are met:
- In tax with their tax return, they owe less than $1,000
- They paid the smaller of these two amounts, throughout the year: a minimum of 90% of the tax of the current year, or 100% of the tax can increase to 110% based on adjusted gross income as shown on the tax return for the prior year
To check if taxpayers owe a penalty, they should use Form 2210. The IRS might waive the penalty if someone underpays because of peculiar circumstances and not willful neglect. Examples include:
- casualty, disaster, or another unusual situation.
- an individual retiring after the age of 62 during a tax year when estimated tax payments applied
- an individual gets disabled during a tax year when estimated tax payments applied.
The best way to make an online payment is directly on the IRS website at https://www.irs.gov/payments.
You can use the Form 1040-ES for calculating and paying the taxes. The ways to pay estimated taxes include check, cash, money order, credit card, debit card.
The Electronic Federal Tax Payment System (EFTPS) is another option out of the many online payment options. In the instructions for Form 1040-ES, the various payment methods have been described. The fourth and final 2020 estimated tax payment is due Jan. 15, 2021.