What is the date for the payment of your individual income tax?

If you answered April 15, you are not alone….. you are also not exactly correct.

Did you know that the IRS requires that 90% of your current year's tax liability be remitted to them before December 31 of the tax year in question??? For most people, this is not a problem because generally an employer withholds income tax from an employee's earnings and remits the amount withheld to the government throughout the year. However, if you are one of the increasing number of people that do not have a "traditional" type of employer or have substantial earnings from other sources, you may quickly find yourself making quarterly estimated tax payments.

Who is required to make quarterly estimated tax payments?

Anyone that does not have more than 90% of their taxes withheld by payroll deductions by December 31, and has an outstanding liability of more than $1,000 is required to pay their estimated tax liability through quarterly estimated tax payments. The people most often affected by this situation include: self-employed individuals; retired people; partners of a partnership; members of a limited liability company or partnership; or people that have a significant amount of income from other sources such as interest, dividends and capital gains.

How is the amount of my quarterly estimated tax payments determined?

Generally, ¼ of 90% of your annual income must be paid on each of the following dates: April 15, June 15, September 15, and January 15 of the following year. However, if your income is not received evenly throughout the year, the IRS allows each quarterly estimated tax payment to be calculated based on the income received in that quarter only.

How can I determine the amount of my quarterly estimated tax payments if I have no idea of what my income will be for this year?

In order to provide some protection for people that have earnings that are difficult to estimate or that have an unusually high amount of income in one year, the IRS allows taxpayers the option of calculating their estimated tax payments based on their prior year income amount. For taxpayers that have an adjusted gross income of less than $150,000, the taxpayer must pay 100% of their prior year tax in equal quarterly payments by the due dates mentioned above. For taxpayers that have an adjusted gross income of more than $150,000, the taxpayer must pay 110% (for 2001) of their prior year tax in equal quarterly payments by the due dates mentioned above.

What happens if I don't pay the quarterly estimated tax payments that are due?

Currently, the IRS imposes a 9% penalty for the underpayment of quarterly estimated tax payments. This penalty is automatically imposed and due with the filing of your income tax return. We understand that the subject of quarterly estimated tax payments is confusing for many clients. If you should have any questions concerning this matter or if you would like to discuss your personal situation, please feel free to contact us.