Most professionals don’t have to worry much about taxes. They fill out basic paperwork with their employers when they start new jobs. Those documents may include tax paperwork identifying their dependents for tax withholding purposes.
For most employees, their employer intercepts a portion of their pay and sends it to state and federal tax authorities on their behalf. The only real responsibility that falls to the worker is the obligation to file an annual return reconciling contributions with the full amount owed. Many times, income tax returns result in refunds. In such cases, individuals paid more in taxes than they actually owed. They can then receive money back from the government to compensate them for the overpayment.
In scenarios where employers did not withhold enough to cover income taxes, workers may have to pay toward their income tax responsibility. Some people filing tax returns end up shocked because they have a large amount due at the end of the process. Quarterly estimated income tax payments are one way for people to avoid accruing a high tax balance. When do people have to make estimated quarterly tax payments?
When they work for themselves
As a general rule, independent contractors and business owners generally have to file estimated quarterly tax payments. They have a grace period during their first year when working as self-employed individuals or running their own companies.
After that, they must submit estimated quarterly payments four times a year to ensure they fulfill their income tax responsibilities. Small business owners and self-employed professionals typically need to set money aside to pay quarterly toward their income tax responsibilities. Independent contractors or self-employed professionals who just transitioned from an employment arrangement may feel shocked when they see what they owe if they fail to make quarterly contributions.
When they have other sources of income
Even those who are employees sometimes have to make estimated quarterly income tax payments. The main factor in determining responsibility is whether an individual owes taxes when they file their annual return. Typically, those who owe $1,000 or more in income taxes have to make estimated payments.
People can fall behind on tax contributions because of improper withholding on the part of their employer or alternate streams of income, such as investments or rental properties, may need to make quarterly tax payments. People who fail to do so are at risk of incurring a penalty. They also have to consider the possibility that they may fall drastically behind and may struggle to collect the necessary funds to cover their tax obligations.
Even those who have failed to make quarterly payments and who have fallen behind substantially can sometimes navigate income tax issues with minimal consequences. Securing the right support when addressing issues related to unpaid income taxes and incomplete quarterly tax filings can help people avoid fees, interest and possibly even criminal prosecution.