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I Missed a Quarterly Tax Payment…Now What?
I Missed a Quarterly Tax Payment…Now What?
Quick, when is the next quarterly estimated tax payment due? August 15? Or is it September 15? If you're self-employed, you're probably used to juggling all sorts of deadlines because you're running your own business. Maybe you're working on three different projects for three clients or juggling shifts between a rideshare app and a food delivery app with your work as a carpenter. Not to mention dating, helping the kids with their homework or just finding time to watch a single episode of something on Netflix.
Inevitably, things slip through the cracks once in a while. Here's what happens when one of those things happens to be a quarterly estimated tax payment, and you wind up with estimated tax penalties.
Table of contents
Wait, do I fully understand quarterly estimated tax payments?
Before we get to what happens when you miss a payment and estimated tax penalties begin to roll in, let's make sure it's super clear how quarterly tax payments work.
What is a quarterly estimated tax payment?
Who should be paying quarterly estimated taxes?
How do I know how much to pay in quarterly estimated taxes?
Quarterly tax dates 2023
What happens if I forgot to make a payment?
The gaps between quarterly estimated tax deadlines vary, and the date each payment is due is not the same each month. With a weird schedule like that, it can be even easier to forget to pay. Or maybe you didn't forget to pay. Perhaps you had a huge car repair recently or the credit card bill was due, and you just don't have the cash at the moment. We've all been there at some point.
Whatever the reason, if you missed a quarterly tax payment, what can be done?
Step 1: Breathe
Take a deep breath. Understand that this happens to other people from time to time, too, and you're not alone. You might be overwhelmed, and your first instinct might be to ignore the estimated tax penalties the IRS is levying on you, but that's the worst course of action. Instead, do something now to address the damage done, because the estimated tax penalty will only continue to grow.
Step 2: Pay what you can
When you're running a business, there are more business expenses than you can count, and many of them might seem more important than this one. But if you can pay something, anything, it will help.
The IRS charges interest on the tax payment and the estimated tax penalty you owe. If you can make partial payments, it will reduce the interest on the payments you owe. Get in touch with the IRS and ask for a payment plan, an option available to those who owe less than $50,000. If you can't pay everything now, this is the next best thing because, at least with a payment plan, you won't be surprised by any further estimated tax penalty.
Step 3: Work with the IRS
Did we just say "work with the IRS?" Yes, contrary to popular belief, the IRS isn't out to get you, and even if it feels like it sometimes, their goal is not to ruin your day. They just want to collect the estimated tax penalties owed to them, and they will work with you if they can help make that happen. After all, the IRS enforces the laws around taxes, and they have the power to waive fees and discontinue your estimated tax penalty.
That's why it's worth talking to them. Show the IRS reasonable cause for missing a payment, and they will likely waive your late payment fee for estimated payment. Even if they don't, their expectations will be absolutely clear to you, and maybe you can avoid another penalty for not paying quarterly taxes.
How much is the penalty for not paying estimated taxes?
If you miss the deadline for a quarterly tax payment, the IRS automatically charges you 0.5% of the amount that you didn't pay for each month that you don't pay, up to 25%. To find out how much you owe up to this point, you can use a tax penalty calculator. It can also tell you your IRS underpayment penalty, too, if you have one.
If you eventually receive a notice from the IRS that they intend to seize your property, that 0.5% rate goes up to 1% per month. But, the estimated tax penalty goes down to 0.25% per month if you have a payment plan with the IRS (again, talk to them).
What if I'm late on estimated tax payment and filing my return?
Not to compound the bad news, but there is also an underpayment penalty if you are late paying estimated taxes. The fine for failing to file and the IRS underpayment penalty combine to 5% of your original payment. The long-term impact just gets worse from there, and it becomes even easier to see why paying as soon as you can, or better, paying on time in the first place, is super important.
What’s FlyFin?
FlyFin is the #1 A.I.-powered tax app for freelancers, gig workers, independent contractors and sole proprietors. For taxpayers who want to save more by itemizing their deductions, and get help with quarterly taxes, FlyFin tracks all their business expenses automatically using A.I. to find every possible tax write off and helps them be prepared for quarterly estimated taxes.
Then, FlyFin's CPA team files a guaranteed 100% accurate tax return for you – to save you a couple of thousand dollars and a ton of time on your taxes.
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