Estimated tax payments (or “quarterlies”) are due January 17th, 2023. These payments are for your 2022 income tax.
Why do we have to make estimated tax payments? Well, our tax system is a pay-as-you-go system, you are supposed to pay tax as you earn income. That is why you have withholding taken out of your paycheck if you work for someone else. But for those of us who are self-employed, or who earn income in other ways, we have to pay into the system during the year using estimates.
Estimated payments are required if your tax due in the prior year (so, your 2021 taxes) was over a $1000 for federal tax, and generally about $400 for local tax. The rule for federal is that you must pay in at least 90% of the tax for the current year (2022), or 100% of the tax shown on the return for the prior year (2021), whichever is smaller. Our system automatically calculates your estimated payments on the second rule, 100% of the prior year’s tax due. We call this “penalty proof”, because if you pay the estimates calculated that way on time you will not be penalized for underpayment of tax, even if you owe more in the current year than you did in the prior year.
SO, that being said, this time of year I start getting phone calls from people asking if they still need to make their quarterly payments. I used to tell people to do what they were comfortable with, but in the past year I have seen more underpayment penalty letters than ever before. The cities (Columbus, Dublin, RITA) are also getting aggressive. So pretty much, yes, pay your estimated taxes. If your income is significantly lower than it was 2021, let me know and we can run a quick projection to see where you stand.
More questions? Should I add more to this post? Let me know! I can’t turn on comments because dear Lord the bots will attack. But send me a quick email.