To enter into any tax payment agreement with the IRS, be it an Offer in Compromise or Installment Agreement plan, you first must be compliant. You have to be paying the current year’s taxes via either tax withholdings from you paycheck or the most accurate estimated tax payments.
If you are an employee, you don’t have to make estimated tax payments. However, so see to it that you completely cover your tax obligation; ensure that your Form W-4 withholdings are approriately structured. The same principe applies if your main income sources are unemployment, pensions, or payments from Social Security.
If you receive any taxable income, organize to have withholdings to be deducted. For Social Security, use the IRS Form -4v and Form W-4p for pension. If you are unemployed, contact your state’s unemployment department for the necessary documents.
If most of your income is from a profitable investment or business free from deductions for withholdings, be ready to make estimated tax payments if:
- · You anticipate to owe the IRS $1,000 or more by April 15 after deducting your refundable credits and withholding.
- · You suppose refundable credits as well withholdings to be lower than the smaller of:
-90% of the tax to be indicated on your tax return in 2012
-100% of the tax indicated on your tax return in 2011, which must cover the twelve months of the year. (If your 2012 AGI was more than $75,000 as single filer or $150,00 for married taxpayers filing jointly, replace 100% with 110% )
You don’t have to worry about the estimated tax payments if your 2011 tax liability was less than $1,000.
When the Estimated Tax Payments Should be Made
Payment of taxes are due as follows (unless the tax due date is on a public holiday or weekend when it is moved to the following business day.)
- First quarter-April 15th
- Second quarter-June 15th
- Third quarter-September 15th
- Fourth quarter-January 15th
Farmers have two payment periods; they can either pay the whole amount on January 15, or March 15 when filing their tax returns.
Estimated Tax Payment Options
The Electronic Federal Tax Payment (EFTPS) is the easiest way to pay estimated taxes. This is a free and convenient payment solution, and since the money is directly paid from your bank account; you retain the proof that indeed, the owed taxes have been paid in full. Just see to it that the payment is made to the right tax type or tax year. All payments made during the year can be downloaded and printed and attached to the tax return when filing. Paying estimated taxes will safeguard you from the many IRS penalties and interests.