By: Michelle Sierra, Enrolled Agent
Did you know that you could receive a penalty for not making payments quarterly to the Internal Revenue Service (IRS) or Franchise Tax Board (FTB)?
Your taxes must be paid in line with your income, so if you do not withhold enough on your W-2, you may be required to make estimated tax payments each quarter. Keep in mind if you receive other sources of income such as self-employed income, interest or pensions (just to name a few), you may also be underpaying your taxes.
The general rule requiring estimated tax payments to the IRS is as follows:
1. If after subtracting your withholding and credits, you expect to owe at least $1,000 in tax for 2019, and;
2. Your withholdings and credits are expected to be less than 90% of your tax shown on your 2019 return or 100% of the tax shown on your 2018 tax return.
To avoid a penalty by the IRS, you have two options:
1. Make all payments by April 15 of the year you are calculating the estimates.
2. Pay four equal payments on April 15, June 15, September 15, and January 15. If the 15th falls on a weekend or holiday, you may pay on the next business day.
Failure to make the required payments timely may result in a penalty even if you receive a refund when the return is filed.
California has different requirements. For the FTB, you should make estimated payments if you expect to owe at least $500 in tax for 2019 (after withholdings and credits) and your withholding and credits are to be less than the smaller of 90% tax shown for 2019 or 100% tax shown on your 2018 return.
The following is the breakdown of how your estimated tax should be paid to FTB: 30% on April 15; 40% on June 15; 0% on September 15; and 30% on January 15.
California requires payments to be made electronically. If at any point your estimates or extension payments exceed $20,000 or your tax liability is over $80,000, a 1% penalty on tax owed will be assessed.
Do you want to be sure you are incompliance and find out more about whether or not you are required to make quarterly estimated payments? If so, contact us at Osborne Rincon CPAs at (760) 777-9805.