The Internal Revenue Service (IRS) has set January 15, 2024, as the deadline for the fourth-quarter estimated tax payment. Missing this critical date could result in "unexpected penalties and fees" when taxpayers file their returns. The penalties apply to individuals who owe taxes from year-end bonuses, stock dividends, capital gains from mutual fund payouts, or profits from cryptocurrency sales.
The IRS emphasizes a "pay as you go" approach to federal income taxes. This system requires taxpayers to make payments throughout the year as they earn income. This approach helps avoid a surprise tax bill at tax time, as noted by the IRS. Several methods are available for making these estimated payments. Taxpayers can utilize their IRS online account, which provides payment history, pending payments, and other essential information. Alternatively, they can use IRS Direct Pay or the Treasury Department's Electronic Federal Tax Payment System (EFTPS).
The "safe harbor" rule is crucial for taxpayers aiming to avoid penalties. This rule stipulates that individuals must pay at least 90% of their 2024 tax liability or 100% of their 2023 taxes. For those with an adjusted gross income of $150,000 or higher, the threshold rises to 110%. Taxpayers can find their 2023 adjusted gross income on line 11 of Form 1040.
Missing the January 15 deadline may lead to an interest-based penalty that compounds daily. The penalty amount is calculated based on the current interest rate and the amount that should have been paid. Individuals who do not adjust their payments after earning more than expected may still owe taxes for 2024.
Sheneya Wilson, a Certified Public Accountant and founder of Fola Financial in New York, highlighted a positive aspect of the situation:
"The good thing about this last quarterly payment is that most individuals should have their year-end numbers finalized," – Sheneya Wilson, a CPA and founder of Fola Financial in New York.
Taxpayers can choose between tax withholdings, estimated payments, or a combination of both to meet their obligations and avoid penalties.