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Succentrix Accounting & Tax Updates


YOU MAY NEED TO FILE ESTIMATED TAX PAYMENTS


Estimated tax payments are not just for the self-employed. They are for anyone whose withholding and tax credits are significantly less than their projected tax liability, and if used properly, can protect a taxpayer from underpayment penalties.


Employees who will have income, Social Security, and Medicare taxes withheld from their wages generally do not need to make estimated tax payments. On the other hand, self-employed individuals must prepay their taxes by making quarterly estimated tax payments. These are referred to as estimated tax payments because the self-employed individual must estimate his or her net earnings for the year and pay taxes on a quarterly basis according to that estimate. Failure to do so will result in interest penalties.


The self-employed are not the only ones who are subject to estimated tax requirements – anyone who has income on which there’s no income tax withheld, and even those whose taxes are not sufficiently withheld, may need to make estimated payments. Thus, if you have income from stock sales, property sales, investments, alimony, partnerships, S-corporations, inherited pension plans, or other sources where no tax was withheld, you may also be required to pay either estimated taxes or run the risk of an underpayment penalty. Others subject to making estimated payments are individuals who must pay special taxes such as the 3.8% tax on net investment income or the employment tax on household employees.


Although these payments are called “quarterly” estimates, the periods they cover do not usually coincide with a calendar quarter. For 2022 the dates are:


*If the due date falls on a Saturday, Sunday, or holiday, the payment is due on the next business day. For taxpayers in Maine and Massachusetts, the first 2022 estimate payment is due on April 19, 2022.

An underestimated penalty does not apply if the tax due on a return (after withholding and refundable credits) is less than $1,000; this is the “de minimis amount due” exception. When the tax due is $1,000 or more, underpayment penalties may be assessed.


The underpayment penalties are determined on a quarterly basis, so an underpayment in an earlier quarter cannot be made up for in a later quarter’s payment. However, withholding is treated as being paid ratably throughout the year. Thus, increasing withholding in the later part of the year can help make up for underpayments in earlier periods in the year. Contrarily, an overpayment in an earlier quarter is applied to the following quarter.


The amount of an estimated payment is determined by estimating one-fourth of the taxpayer’s tax for the entire year; the projected tax is paid in four installments. When the income is seasonal, sporadic, or the result of a windfall, the IRS provides a special form, and the underpayment penalty is based on actual income for the period.


For individuals who do not want to take the time to estimate their quarterly taxes but who still want to avoid the underpayment penalty, Uncle Sam also provides safe-harbor estimates. However, even these can be tricky. Generally, taxpayers can avoid an underpayment penalty if their withholding and estimated payments are equal to or greater than

  • 90% of the current year’s tax liability or

  • 100% of the prior year’s tax liability.

However, these safe harbors do not apply if the prior year’s adjusted gross income is over $150,000, in which case, the safe harbors are

  • 90% of the current year’s tax liability or

  • 110% of the prior year’s tax liability.

Thus, a true safe harbor, regardless to the current year’s tax liability would be withholding and estimated tax payments equal to or greater than 110% of the prior year’s tax liability.


Sometimes, individuals who have withholding on some (but not all) of their sources of income will increase that withholding to compensate for the additional income sources that have no withholding. Although this may work, withholding adjustments are not as precise as quarterly payments and should be used with caution.


This office can assist you in estimating payments, adjusting withholding, and setting up safe-harbor payments. Please call for assistance.

 

SBA EXTENDS DEFERMENT OF PRINCIPAL & INTEREST FOR COVID EIDL LOANS


On March 16, the U.S. Small Business Administration (SBA) announced a new program to provide additional deferment of principal and interest payments for existing the COVID Economic Injury Disaster Loan (EIDL) program for a total of 30 months from inception on all approved COVID EIDL loans. The extended deferment period will provide additional flexibility to small business owners impacted by the pandemic, especially those in hard-hit sectors managing disruption with recent variants, as well as recent supply chain and inflation challenges amid a growing economic recovery.


 

WHAT IS TODAY?

National Walking Day


The first Wednesday in April is National Walking Day and it encourages Americans of all ages to get out and stretch their legs and get their hearts pumping. The American Heart Association sponsors this day to remind people about the health benefits of taking a walk. Wear your sneakers (or take them with you) to work, and at some point in the day, take a 30-minute walk.


 

National Day Calendar. (2022, March 29). National Walking Day - first wednesday in April. National Day Calendar. Retrieved April 6, 2022, from https://nationaldaycalendar.com/national-walking-day-first-wednesday-in-april/




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