Time is running out for taxpayers to avoid a “surprise” penalty if they did not pay enough taxes in 2022.
The deadline for fourth-quarter estimated tax payments is Jan. 17, according to the Internal Revenue Service. Filers who fail to make a payment by that date risk an “unexpected potential tax bill” when they file in 2023.
“Either payment method – withholding or estimated tax payments – or a combination of the two, can help avoid a surprise tax bill at tax time and the accompanying penalty that often applies,” the IRS said earlier this month.
STILL MISSING YOUR TAX REFUND? THE IRS WILL SOON PAY YOU 7% INTEREST
Americans may choose to withhold taxes from their income, or they can make estimated payments to the IRS four times each year. Taxpayers can also choose a combination of both. If you do not make the payments, you may owe interest and a penalty of 0.5% on the entire amount that you owe and up to 25% total.
Experts advise that if you cannot make the entire payment, that you pay as much as you can by the deadline instead of waiting to pay the tax bill in its entirety in order to lessen the potential penalty.
IRS SAYS YOUR TAX REFUND COULD BE SMALLER IN 2023 — HERE’S WHY
The option applies to income from self-employment, investments and gig economy work, among others. It is frequently used by independent contractors, freelancers and gig workers because there is no tax automatically withheld on their income. Some small businesses, as well as landlords and self-employed workers, also take advantage of the practice.
If a taxpayer failed to make a required quarterly payment this year, they could be charged a penalty later. But making a payment by the Jan. 17 deadline could help to lessen any financial fee owed to Uncle Sam – and could eliminate it altogether.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
The fastest way to make a quarterly payment, according to the IRS, is electronically using a tool called Direct Pay. Taxpayers can choose to schedule the payment in advance.
However, individuals can also make payments through their IRS Online Account or digitally through the Electronic Federal Tax Payment System.
The IRS provides other payment options on its website.
The 2023 tax season officially begins on Jan. 23, at which point the IRS will start accepting individual tax returns. Most filers have until April 18 to file their taxes or request an extension.