For information on the third coronavirus relief package, please visit the blog post “The US bailout: what it means for you and check out the third stimulus.”
Who pays the assessed tax?
Not all income is prepared so that taxes are deducted at source. Independent and independent contractors, for example, are not taxed from their wages. Earnings from interest, dividends, rent, taxable unemployment compensation, retirement benefits, and the taxable portion of your Social Security benefits are other examples of non-taxable income at source. If you have any such income, you have to pay the assessed tax.
Get every dollar you deserve with unlimited tax tips from experts who know self-employment taxes inside and out. Whether you’re freelance, independent contractor, small business owner, or have multiple streams of income, TurboTax Self-Employed can help you uncover industry-specific deductions for which you qualify. Additionally, you can get an additional discount of up to $20 when you file with TurboTax Self-Employed.
Pay estimated taxes
The estimated tax payment is based on your income estimate for the current year. As such, it is possible to be taken lightly, resulting in a smaller amount and a fine. To avoid this penalty, use the previous year’s taxes as a guide. As long as you pay 100 percent of the previous year’s tax, you will not be subject to the penalty. If you end up overpaying, you can get a tax refund at the end of the year.
You must pay the quarterly tax on time, or you may find yourself subject to a quarterly penalty for late receipt of the tax, even if you paid the total tax due for the year more than necessary and qualify for a refund.
Estimated Tax Calculation
The calculation is based on an estimate of current income. To help estimate, you can start with your previous year’s federal tax return. Look at taxable income, taxes paid, credits, and deductions from the previous year and compare them to the current year’s figures. The Form 1040-ES package includes worksheets to help you calculate the differences between your previous and current year’s income and calculate your tax.
Who Should File a 1040-ES
To see if you should file a 1040-ES for the current year, do the following calculation:
Take the tax you paid in the previous year. Calculate 90 percent of the tax you estimate you will owe in the current year. Compare the two and take the smaller number. (For example, you paid $500 in tax the previous year. This year you estimate you will pay $1,000, 90 percent of which is $900. The smaller of the two numbers is $500.) Now compare the total of any deductions and credits you may have to this number.
If you expect to owe at least $1,000 in taxes, after all deductions and credits, and the deduction and credit are expected to be less than the calculated number—in this example, $500—you must file a 1040-ES.
TurboTax Live experts are looking for you. Experts help you your way: Get help as you go, or turn in your taxes. You can talk directly to our online tax experts for unlimited answers and advice or hire a dedicated tax expert to adjust taxes for you, so you can be confident on your tax return. Enjoy up to $20 extra discount when you start using TurboTax Live.
If you had no prior year tax liability, were a US citizen or year-round resident and the previous tax year covered 12 months, you do not have to file Form 1040-ES.
When to file a 1040-ES
Estimated tax payments are due four times in a tax year. For calendar year taxpayers (which are most individuals), due dates are April 15, June 15, September 15 of the current year and January 15 of the following year or the next business day if the due date falls on a weekend or holiday.
If you’re working on a fiscal year calendar—the year doesn’t run from January 1 to December 31—then the four due dates are distributed throughout the fiscal year, on the fifteenth of the fourth, sixth, and ninth month of the year and on the fifteenth of the first month of the following fiscal year.
You can pay weekly, bi-monthly, or any period that works for you, as long as you pay the full amount owed for that period. You can also estimate your tax liability for the full year and pay the assessed tax in one go by April 15th of the current year.
TurboTax Self-Employed will ask you simple questions about your life and help you fill out all the correct forms. Perfect for independent contractors and small businesses. We’ll research over 500 tax credits to get you every dollar you deserve and help you uncover industry-specific deductions.