Episode 83: In this episode, Timalyn talks about a very common misconception she’s been hearing, people thinking they can just wait until tax season to pay everything. She explains how the underpayment of estimated tax works for individuals and what can happen if you don’t pay throughout the year.

What is the underpayment of estimated tax?

The underpayment of estimated tax is a penalty the IRS may charge if you don’t pay enough taxes as you go throughout the year. The tax system in the U.S. is pay-as-you-go, so as you earn income, you’re supposed to be paying toward your tax liability.

Who needs to make estimated tax payments?

If you’re a W-2 employee, your employer is already withholding taxes from your paycheck and sending that in for you. The same usually applies if you’re receiving Social Security or a pension.

But if you’re self-employed or you have income coming in from rentals, investments, or other sources, then it’s your responsibility to make those payments during the year.

When are estimated taxes due?

Estimated taxes are typically due:

- April 15 – Income earned Jan 1 – Mar 31

- June 15 – Income earned Apr 1 – May 31

- September 15 – Income earned Jun 1 – Aug 31

- January 15 (following year) – Final payment for the year

Each payment covers income earned during different parts of the year, even though the dates don’t always line up evenly.

What happens if you don’t pay throughout the year?

A lot of people think they can just wait and pay everything when they file their tax return. While you can do that, the IRS may charge you a penalty for not paying on time throughout the year.

That penalty is based on how much you underpaid, how long it was unpaid, and the interest rates for each quarter. And on top of that, interest continues to add up until the balance is paid.

How can you avoid the penalty?

You may be able to avoid the penalty if:

- You owe less than $1,000 in total tax liability

- You paid at least 90% of your current year’s taxes

- You paid 100% of last year’s taxes (or 110% if your income is higher)

The IRS will generally go with whichever option is more favorable for you.

Can the penalty be reduced or removed?

In some cases, yes. You may be able to reduce or remove the penalty using Form 2210.

This can apply if you recently retired, became disabled, or had uneven income during the year, like receiving a lump sum payment or having seasonal income.

What should you do moving forward?

The main takeaway is to stay on top of your taxes during the year. If you’re working a job, make sure your withholding is correct. If you have other types of income, make sure you’re making estimated payments when needed.

Waiting until the end might feel easier, but it can cost you more in the long run.

Need Tax Help Now?

If you need answers to your tax debt questions, book a consultation with Timalyn via her Bowens Tax Solutions website. Click this link to book a call.

If you’re dealing with penalties, you may be a candidate for penalty abatement, where some penalties can be reduced or removed.

As we conclude Episode 83, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, YouTube, and many other podcast platforms.

Remember, Timalyn Bowens is America’s Favorite EA, and she’s here to fill the tax literacy gap, one taxpayer at a time. Thanks for listening to today’s episode.

For more information about tax relief options or filing your taxes, visithttps://www.bowenstaxsolutions.com/

If you have any feedback or suggestions for an upcoming episode topic, please submit them here:https://www.americasfavoriteea.com/contact

Disclaimer: This podcast is for informational and educational purposes only. It provides a framework and possible solutions for solving your tax problems, but it is not legally binding. Please consult your tax professional regarding your specific tax situation.