There is a considerable amount of confusion when it comes to paying estimated taxes. While most individuals simply have wages withheld from their paycheck, many taxpayers need to make payments throughout the course of the tax year beyond any withholdings. This is particularly true for individuals who are self-employed. Yet the failure to file forms regarding estimated taxes correctly, just like the failure to file tax returns in general, can result in tax penalties.
According to an IRS announcement, the failure to “pay enough tax through withholding and estimated tax payments” may result in penalties. Penalties can arise if “estimated tax payments are late, even if you are due a refund when you file your tax return.” Generally you will need to pay estimated taxes when tax liability exceeds a particular amount – such an amount beyond any withholdings from wages.
Michigan residents who pay estimated taxes will ordinarily need to make payments four times per year. Again, a late payment can trigger a penalty. Calculating such taxes require that you look at your taxable income, expected adjusted gross income, deductions, taxes, and any credits you receive during the year. The failure to pay the full amount owed can also result in tax penalties.
Every tax obligation is different, however. You may not owe estimated taxes if you only owe a small amount of taxes or if you paid 90 percent of your taxes for the current year or 100 percent of taxes for the prior year. There are also special rules in place regarding estimated tax payments for certain occupations such as farming or fishing.
Because filing estimated taxes can be complex, mistakes do happen. When mistakes arise, it is always a good idea to take immediate action to remedy the situation. It may prove helpful to ask the advice of a knowledgeable tax attorney at that point.