Consensus LLC

Whether to Withhold or Pay Estimated Tax Source: IRC Sec. 6654 and IRS Pub 505 authored by Rhodora Empaynado, Consensus, LLC August 3, 2018. This discussion is for informational and illustrative purpose only and is not meant to impart tax law advise. Each situation may differ depending on the factual circumstance and jurisdiction.

Who Under IRC Sec. 6654 and IRS Pub 505, sole proprietors, partners, S corp shareholders must pay this estimated tax. The IRS emphasizes that taxpayers who need to make estimated payments include someone who - ● Receives income not from employer, ● Has tax withheld from their salary or pension but not enough ● Has more than 1 job but employer does not withhold taxes ● Is self employed ● Is a representative of a direct sales or in home sales company ● Participates in sharing economy where they are not working as employees

What    According to the IRS, the federal income tax is pay as you go tax. Pub 505. ​Withholding​ means  income tax is withheld from your pay by your employer and paid to the IRS. However, if your  income is low enough, you may be exempt from withholding.     On the other hand, according to IRC Sec. 6654,​ Estimated tax​ is the amount of tax paid in  installments during the year prior to filing a return. The IRS in Pub. 505 provides that  generally, people who are in business for themselves will have to pay the estimated tax

When Estimated tax​ is usually payable in 4 equal installments on April, June, Sept of the tax year and Jan of the next year. IRC Sec. 6654(c)(2). If the taxpayer has income subject to withholding, amounts withheld are treated as estimated tax payments. Thus the amount actually payable as estimated tax is only the excess of the estimated tax over the amounts withheld.​ Id. ​According to the IRS, if a taxpayer doesn’t pay enough or pays late, ​penalty​ may apply. IRS Pub 505. Lastly, the IRS urges the taxpayers to use the IRS withholding calculator https://apps.irs.gov/app/withholdingcalculator/​ to determine whether you need to have withholding. If you need help in determining your US tax liability, please consult with Rhodora Empaynado of Consensus, LLC.

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