Understanding the Deadline for Second-Quarter 2024 Estimated Tax Payments
Taxpayers in the United States are reminded by the Internal Revenue Service (IRS) that the deadline for making second-quarter 2024 estimated tax payments is approaching. Failure to pay on time can lead to tax-underpayment penalties. The IRS has set the deadline for these payments as June 17, according to a press release issued on Monday.
It’s important to note that individuals who expect to have a tax liability of $1,000 or more when they file their annual return are required to make estimated tax payments on a quarterly basis. These payments are made throughout the year to ensure taxes are paid as income is earned. Withholding taxes from wages, pensions, or government payments like Social Security is one way to meet this requirement. The other way is by making estimated quarterly payments.
Typically, quarterly estimated taxes are paid by self-employed individuals, retirees, investors, businesses, corporations, and those who do not have their taxes withheld. However, even employed taxpayers may need to make estimated tax payments if sufficient taxes are not withheld from their salary or other sources of income. To avoid this situation, employed taxpayers can request their employer to withhold a larger amount from their earnings by submitting a new Form W-4, Employee’s Withholding Certificate. It is recommended that taxpayers review and update this form annually as well as when their personal and financial situations change.
To help individuals determine whether they are required to make estimated tax payments for the year 2024, the IRS has created the Interactive Tax Assistant tool. This tool requires taxpayers to have their 2023 income tax return and an estimate of their 2024 income ready. The questionnaire takes approximately 10 minutes to complete. Additionally, individuals can use the Tax Withholding Estimator tool to check if the right amount of taxes is being withheld from their income. This tool also provides insights into how refunds may be affected by the withholding amount.
The IRS advises people to make electronic payments for their estimated taxes. These payments can be made through the taxpayer’s IRS online account or the agency’s Direct Pay service. It is worth noting that individuals who work part-time or have side hustles should report their incomes on Form 1099-K. All income, unless specifically excluded by tax law, is taxable, and taxpayers should report any profits from selling goods or services, regardless of whether they receive a Form 1099-K.
Until tax year 2023, income received from Form 1099-K activities only had to be reported if the taxpayer received more than $20,000 and carried out over 200 transactions. However, the IRS plans to lower the reporting threshold for income to $600 as required by the American Rescue Plan. In tax year 2024, the threshold will decrease from $20,000 to $5,000.
Failure to pay estimated taxes on time can result in underpayment penalties. The IRS recommends that taxpayers pay most of their taxes during the year, owing less than $1,000 when filing their return. For the tax year 2024, this means paying at least 90 percent of the tax owed on their 2024 return or a minimum of 100 percent of the tax shown on their 2023 tax return.
However, there are certain groups exempted from penalties related to underpayment of estimated taxes. These include fishermen, farmers, disaster victims, recent retirees, individuals with uneven income for the year, and those who have recently become disabled.
In terms of penalties and interest rates, the IRS charges an interest rate of 8 percent per annum for tax underpayments during each calendar quarter. For failure-to-pay penalties, taxpayers may face a penalty of 0.5 percent per month for the portion of the tax that remains unpaid, up to a maximum penalty of 25 percent. Failure-to-file penalties incur a 5 percent penalty per month, also up to a maximum of 25 percent. If the filing is more than 60 days late, there is a minimum penalty of $485 or 100 percent of the tax owed, whichever is less.
Taxpayers who are unable to pay their dues in full have the option to make a partial payment and choose from various payment options to settle the remaining balance. These options include obtaining a loan.
It is crucial for taxpayers to be aware of the deadlines for estimated tax payments and to fulfill their obligations to avoid penalties and underpayment issues. By staying informed, utilizing the IRS’s tools, and taking appropriate action, taxpayers can ensure they meet their tax obligations in a timely and accurate manner.
