Paying taxes is never a pleasant task but being organized at least makes the process easier and avoids unwelcome surprises. How can taxpayers pay the right amount of tax throughout the year?
The IRS constantly gives taxpayers tips and reminders to help them organize their payments, deadlines, and tax obligations, and this week the agency explained to individuals how to pay the right amount of tax throughout the year.
The IRS, on its website, has explained that federal taxes are pay-as-you-go, which means that people need to pay most of their tax during the year, as they earn income.
This can be done either through withholding or estimated tax payments.
If the amount of income tax withheld from a taxpayer's salary or pension is not enough, or if they receive income such as dividends, interest, capital gains, alimony, self-employment income, prizes, and awards, they may need to make estimated tax payments. Self-employed taxpayers may also need to make estimated tax payments.
Adjust 2021 withholding
The agency has reminded taxpayers that they should review their federal withholding each year to make sure they're not having too little or too much tax withheld.
Employees, retirees, and self-employed individuals can use the IRS Tax Withholding Estimator to help decide if they should make a change to their withholding.
This online tool guides users, step-by-step through the process of checking their withholding, and provides withholding recommendations to help aim for their desired refund amount when they file next year.
Make 2021 estimated tax payments
Estimated payments are another way for taxpayers to pay what they owe in separate quarterly payments. For the tax year 2021, the remaining quarterly estimated tax payments are due from individual taxpayers on June 15 and September 15, 2021, and January 15, 2022.
According to the agency’s website, individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when they file their return.
Paying quarterly estimated taxes will usually lessen and may even eliminate any penalties.
The fastest and easiest way to make estimated tax payments is electronically using Direct Pay or Electronic Federal Tax Payment System.