If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The 4th quarter due date for the 2022 tax year is now here.
Due date: Tuesday, January 17, 2023
You are required to withhold at least 90 percent of your 2022 tax obligation or 100 percent of your 2021 federal tax obligation.* A quick look at your 2021 tax return and a projection of your 2022 tax return can help determine if a payment by Tuesday, January 17, 2023 is necessary. Here are several other things to consider:
Underpayment penalty. If you do not have proper tax withholdings, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. So a fourth quarter catch-up payment may not help avoid an underpayment penalty if you didn’t pay enough taxes in prior quarters.
Self-employed. Remember to also pay your Social Security and Medicare taxes, not just your income taxes. Creating and funding a savings account for this purpose can help avoid a cash flow hit each quarter when you pay your estimated taxes.
Don’t forget state obligations. With the exception of a few states, you are often required to make estimated state tax payments when required to do so for your federal tax obligations. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.
*If your income is over $150,000 ($75,000 if married filing separate), you must pay 110% of last year’s tax obligation to be safe from an underpayment penalty.
Contact any member of the Baker Holtz team at 616-458-1835 for assistance.