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Do I need to prepay federal taxes?

On Behalf of | Sep 7, 2021 | Firm News |

Prepaying your federal taxes occurs when you make estimated taxes. Most people will prepay taxes through deductions from their paychecks.

However, some people may not have their employer deduct taxes, which means they may have to pay estimated tax payments. The IRS explains you must pay estimated taxes if you will owe $1,000 or more in taxes when you file.

Figuring the tax

You will need to estimate your earnings for the next tax year to come up with your estimated tax payment amount. You also need to know your credits and deductions because they will figure in. The IRS provides Form 1040-ES to assist you with the calculations.

Paying the tax

If you will owe estimated taxes, you will need to make four payments throughout the year. The first one you will make when you file your taxes. You can then pay the remaining ones every quarter using the same methods you would use to pay any tax you owe when filing your return.

Understanding the need for the tax

If you meet the requirement to pay the tax, then you must pay it. If you do not, the IRS can penalize you. The IRS will also penalize you if you do not pay enough estimated tax. Although, you can usually avoid this by making sure you at least pay 100% of the tax you owed the previous year.

If your employer does not withhold taxes or you work for yourself, it is essential to make sure you pay your estimated taxes to the federal government. You may end up paying additional fees if you fail to pay when you should.

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