Consider estimated tax payment deadlines as an opportunity to connect with clients
Second quarter estimated tax payments are due June 15, 2023. Many of our clients owe these estimated tax payments, due based on estimated earnings from self-employment, investments, gig economy work, small businesses, and more.
While it’s easy to “set it and forget it” by including the required payment amounts for each of the four 2023 estimated tax payment due dates – April 18, June 15, Sept. 15, and Jan. 16, 2024 – these are ideal times to touch base with clients about a wide variety of points, from confirming that actual earnings and estimated earnings are in line with one another, to business consulting and quarterly tax planning and advisory discussions.
How to calculate estimated tax payment amounts
To avoid penalties, clients can pay the lesser of 90% of taxes for 2023 or 100% of 2022 levies, if adjusted gross income (AGI) is less than $150,000.
For those with AGI above that number, they must pay 110% of their 2022 tax liability.
Gig workers and the self-employed are at greater risk of missing quarterly estimated tax payments
One of the challenges for those who work as freelancers, entrepreneurs, or other professionals who don't have taxes deducted from their paychecks – 1099 workers and the self-employed, for example – is meeting quarterly estimated tax deadlines. Many don’t realize that they need to pay estimated tax payments or the repercussions of failing to do so. However, missing estimated tax payments can result in penalties and interest added to their tax liability next April, something many can’t afford.
When talking with clients, stressing the importance of staying organized and on top of deadlines is key in order to meet their tax obligations throughout the year and avoid surprises next April.
W2 Workers aren’t always exempt from making estimated tax payments
Just because a client has taxes withheld from their paycheck by an employer doesn’t mean they won’t be subject to making estimated tax payments. Depending on other income and how much they have withheld, there is a real possibility that a taxpayer may need to make quarterly estimated tax payments if their employer does not withhold enough from each paycheck.
Connect with clients to help avoid April surprises
To help clients avoid underpayment penalties, it is important to accurately calculate their tax payments and ensure that they are paid on time. Clients should also be advised to meet the “safe harbor” rule by paying at least 90% of the current year’s tax liability or 100% of last year’s taxes, whichever is smaller.
However, high-income taxpayers with a 2022 adjusted gross income of $150,000 or more need to pay 110% of last year’s taxes to meet the safe harbor requirement for 2023.
Electronic payments are the fastest, easiest, and most secure option for making estimated tax payments. Clients have multiple options to make payments: through their online account, via Direct Pay, the Electronic Federal Tax Payment System, and more. However, there may be a fee for debit and credit card payments.
What if my client misses an estimated tax payment?
If a taxpayer misses one of the four estimated tax payment deadlines for 2023 — April 18, June 15, Sept. 15, or Jan. 16, 2024 — the taxpayer will incur a late penalty of 0.5% of their unpaid balance per month or partial month, up to 25%, plus interest.