What Happens if You Miss a Quarterly Estimated Tax Payment?

If you're a freelancer or self-employed individual, you're probably familiar with estimated quarterly taxes. These are payments you make to the IRS four times a year to cover your expected income tax liability. However, failing to pay your quarterly taxes can result in penalties and interest charges. In this article, we'll discuss the penalties for underpayment of estimated tax and what to do if you miss a payment.

Penalties for underpayment of estimated tax

If you don't pay at least 90% of the tax you owe for the current year, you may be subject to a penalty from the IRS. The penalty is based on the amount of tax you owe and the number of days you were late in paying. However, there are a few options for penalty relief. For example, if you had a major life event or experienced a natural disaster, you may be able to request penalty relief. Additionally, the annualized income installment method can be used to reduce your penalty if your income varies throughout the year.

The penalty includes interest and can vary by quarter. You may have different penalties for state taxes as well but for 2022 taxes the federal penalty from the IRS is 0.5% of the tax you owe per month, but it also caps at 25%. If you don't pay your taxes the whole year you could easily be subject to penalties of hundreds or even over a thousand dollars.

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What to do if you miss a quarterly tax payment

If you miss a quarterly tax payment, it's important to catch up as soon as possible. You can make an extra payment with your next quarterly payment to make up for the missed one. waiting until the end of the year to pay your taxes can result in penalties and interest charges.It's worth noting that missing one payment doesn't necessarily mean you'll be subject to a penalty. The safe harbor threshold for the penalty is usually 90% of the current year's tax liability, or 100% of the previous year's tax liability for higher-income taxpayers.

Tips for staying on top of quarterly taxes

Staying on top of your quarterly taxes can be challenging, but it's important to avoid penalties and interest charges. Here are a few tips to help you stay on track:

- Keep track of payment deadlines and make payments on time. Set reminders for payment due dates.

- Use accounting software to track your income and expenses.

- Consider working with a tax professional to help you manage your tax obligations.

- Use WorkMade to automate your quarterly taxes so you don't have to do any of the above.

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Each individual and business tax situation is different and unique so WorkMade does not provide specific tax advice, only supplying general information based on information published by various taxing authorities, which may change over time.

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