Can I Skip an Estimated Tax Payment? Consequences and Mitigation Strategies

Understanding Estimated Tax Payments

Self-employed individuals and freelancers are responsible for paying estimated taxes quarterly to the Internal Revenue Service (IRS). These payments cover income taxes and self-employment taxes, ensuring that taxes are paid throughout the year rather than in one lump sum at tax time.

Consequences of Skipping Estimated Tax Payments

Failure to make estimated tax payments on time can result in penalties. The IRS charges a penalty of 0.5% of the unpaid tax for each month the payment is late, up to a maximum of 25%. This penalty accrues until the tax is paid in full or a payment plan is established with the IRS.

Steps to Take if You Miss a Payment

If you realize you have missed an estimated tax payment, it is crucial to take prompt action to mitigate the penalties. Here are the recommended steps:

Pay the Overdue Amount Immediately: Send the IRS the amount you owe as soon as possible. Even though the payment is late, making it promptly can help reduce the penalty.
Consider a Payment Plan: If you cannot pay the full amount immediately, contact the IRS to inquire about a payment plan. This option allows you to spread out the payment over time, reducing the financial burden.
File Form 2210: Filing Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, can help reduce or eliminate penalties if you have a reasonable cause for missing the payment.

Reasonable Cause for Missing a Payment

The IRS may waive penalties if you can demonstrate a reasonable cause for missing an estimated tax payment. Acceptable reasons include:

Casualty, disaster, or other unusual circumstances beyond your control
Substantial change in income or expenses that made it difficult to estimate your tax liability
Inability to pay due to financial hardship

Preventing Future Missed Payments

To avoid missing estimated tax payments in the future, consider the following strategies:

Use a Tax Calendar: Mark the estimated tax payment due dates on your calendar or use an online tax calendar to receive reminders.
Estimate Your Taxes Accurately: Use the IRS’s online tools or consult with a tax professional to estimate your tax liability for the year. This will help you determine the appropriate amount to pay each quarter.
Set Up Automatic Payments: Enroll in the Electronic Federal Tax Payment System (EFTPS) to schedule automatic payments for your estimated taxes. This ensures timely payments without the risk of forgetting.
Make Quarterly Estimated Tax Payments: Even if your income fluctuates, it is generally advisable to make estimated tax payments each quarter to avoid penalties.

Skipping estimated tax payments can lead to penalties, but it is important to remember that the IRS is willing to work with taxpayers who have missed a payment. By understanding the consequences, taking prompt action to rectify the situation, and implementing strategies to prevent future missed payments, you can minimize the impact of this oversight.

Quarterly Estimated Tax Penalties? (What If You Paid The Full Year?)

FAQ

Can you skip a quarterly estimated tax payment?

Penalties are based on the quarter — not the year Say you skipped the June 15 payment, but pay extra in September to make up for it. You’ll still have to pay a penalty for the estimated payment you skipped in June.

Are IRS estimated tax payments mandatory?

Answer: Generally, you must make estimated tax payments for the current tax year if both of the following apply: You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.

Can I choose not to pay estimated taxes?

And you probably don’t have to pay estimated taxes unless you have untaxed income. People who generally may have estimated tax payment obligations are 1099 workers, W-2 workers who are not withholding enough to cover their tax bill, businesses, and some investors. People who aren’t having enough withheld.

Can I cancel an estimated tax payment to the IRS?

You can make estimated tax payments online at IRS.gov 14. With Direct Pay, you can view details on your payment and you can change or cancel your payment using the Look Up a Payment feature up to two business days before the payment date. All online tax payment options are fast and easy to use.

What if I don’t remember to make an estimated tax payment?

Now if you don’t remember to make an estimated tax payment on time, your best bet is to send it in as soon as you remember. The IRS will accept a payment from you at any time — you don’t need to wait until the next quarter’s deadline.

Should I make an estimated tax payment?

If you expect to owe at least $1,000 in taxes when you file your tax return, you may need to make **estimated tax payments** . Estimated tax payments are used to pay income tax, self-employment

What happens if I miss a payment of estimated taxes?

After you start paying estimated taxes, be sure to keep a separate record of the dates you paid them and how much you sent for each period. If you don’t keep accurate records, it can take you longer to prepare your income tax return, and you may miss one or more of the payments you made.

What if my estimated tax payment is late?

The IRS even says on its website that you “may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.” Now if you don’t remember to make an estimated tax payment on time, your best bet is to send it in as soon as you remember.