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If you didn’t pay enough taxes in 2022, there’s still time to avoid a “surprise tax bill” and avoid additional penalties, according to the IRS.
The deadline for fourth quarter estimated tax payments for 2022 is January. 17, which applies to income from self-employment, investments, work in the concerted economy and more.
“It’s where you can make yourself whole at the end of the year,” said certified financial planner John Chichester Jr., founder and CEO of Chichester Financial Group in Phoenix.
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If you don’t withhold taxes from your income, you usually have to make payments four times a year. Otherwise, you may owe interest and a late payment penalty of 0.5% of the unpaid balance per month or partial month, up to 25%.
The IRS says Direct Pay is the “fastest and easiest” way to make payments, with online scheduling options available before January. 17 deadline.
You can also make payments through your IRS online account, which provides access to your payment history, or digitally through the electronic federal tax payment system. You can see other options through the IRS Payments website.
There is a “safe harbor” to avoid federal tax penalties
One key thing to know: Chichester said there is a “safe harbor” to avoid penalties for underpayments on your annual federal taxes.
You won’t have to pay federal penalties if you paid during 2022 and through January. 17, the lesser of 90% of your 2022 taxes or 100% of your 2021 bill if your adjusted gross income is $150,000 or less. (Opt for the latter strategy and you’ll need 110% of your 2021 bill if you earn more than $150,000.)
However, the safe harbor is not a guarantee that you won’t owe more federal taxes by 2022, Chichester said. It asks customers to set aside at least 20% of income to cover federal taxes, plus a smaller percentage for state taxes, depending on where they live.