WASHINGTON, D.C. (NEWS10) – The IRS urged taxpayers Monday to look into options to avoid being subject to estimated tax penalties, which apply when someone underpays their taxes. Taxpayers who paid too little in 2021 can still make a quarterly estimated tax payment now to avoid a surprise tax-time bill. The deadline for making a payment for the fourth quarter of 2021 is January 18, 2022.
Income taxes are pay-as-you-go, meaning taxpayers need to pay most of their tax during the year as income is earned or received. According to the IRS, there are two ways to do this:
- Withholding from paychecks, pension payments and some government payments, such as Social Security benefits or unemployment compensation. Most people pay their tax this way.
- Making quarterly estimated tax payments throughout the year to the IRS. Self-employed people and investors, among others, often pay tax this way.
Either payment method can help you avoid a surprise bill at tax time and the accompanying penalty that often applies. If a taxpayer failed to make required quarterly estimated tax payments earlier in the year, making a payment soon to cover these missed payments will usually lessen and may even eliminate any possible penalty.
People who owed tax when they filed their 2020 tax return may find themselves in the same situation again when they file for 2021. This will likely be true, especially if they failed to take action to avoid another shortfall by increasing their withholding during 2021.
People in this situation often include those who itemized in the past but are now taking the standard deduction, two wage-earner households, employees with non-wage sources of income and those with complex tax situations.
In addition, families who received advance payments of the Child Tax Credit during 2021 but don’t expect to qualify for the credit when they file their 2021 return, may need to make an estimated tax payment.
The fastest and easiest way to make an estimated tax payment is to do so electronically using IRS Direct Pay. Taxpayers can schedule a payment in advance for the January deadline. Though it’s too early to file a 2021 return, it’s never too early to get ready for the tax-filing season ahead. For more tips and resources, check out the Get Ready page on IRS.gov.