Important Date: September 15, 2020
Due date for 3rd Estimated Tax Payment for Tax Year 2020
What is Estimated Tax for Individuals? Estimated tax for Individuals is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc). General Rules: In most cases, you must pay federal estimated tax for 2020 if both of the following apply.
You expect to owe at least $1,000 in tax for 2020, after subtracting your withholding and refundable credits.
You expect your withholding and refundable credits to be less than the smaller of:
90% of the tax to be shown on your 2020 tax return, or
100% of the tax shown on your 2019 tax return (110% for higher income taxpayers.)
Check with your State for state specific estimated tax rules
Payment Due Dates:
Estimated taxes are to be paid on these dates:
1st Payment July 15, 2020
2nd Payment July 15, 2020
3rd Payment September 15, 2020
4th Payment January 15, 2021
How to Pay: The IRS accepts payments online (IRS.gov/Payments); by Phone; EFTPS; or check/money order. Most states also accept online, phone, or check payments for estimated taxes What is an IRS Tax Extension? A Tax Extension give you an additional 6 months to file your Tax Return, making your new deadline October 15. Therefore, if you had an extension for your 2019 taxes, this deadline is October 15. It is not an extension of time to pay your tax bill. S Corp / Partnership extension deadline of 9/15 Individual / Corporation extension deadline of 10/15 Payroll Deferral The IRS just released Notice 2020-65 in response to the August 8, 2020 Presidential Memorandum enabling the deferral of employee social security tax for the period of September 1st through December 31st, 2020. Employers are allowed to defer the withholding and payment of the payroll taxes on employees’ applicable wages, but not required to do so. We would strongly advise our clients to carefully review the cash, legal, administrative, and HR requirements that would be needed during the payback period prior to electing this deferral option. Please reach out to us if you would like to “Opt-In” to the deferral. See below for specific details on the deferral program: The deferred taxes will then be withheld from the employee and submitted by the employer to the IRS within the period of January through April 2021. Please note, this is a postponement of the collection and submittal of the employee’s social security tax, NOT a postponement/reduction of the obligation. During these uncertain times, this may be beneficial for companies struggling with cash flow. However, an employer needs to be aware of the cash requirements that will be required during the payback period. Penalties and interest will begin to accrue on any outstanding amount as of May 1st, 2021. Below is an example. Company ABC employs John Doe who is paid $1,000 per week. Currently With Deferral Election Gross Wage: $1,000 Gross Wage: $1,000 Social Sec EE: <62.00> Social Sec EE: <0.00> Medicare EE: <14.50> Medicare EE: <14.50> Net Pay $873.50 Net Pay $985.50 Tax Payment for Payroll: Tax Payment for Payroll Social Sec EE: $62.00 Social Sec EE: $0.00 Social Sec ER: $62.00 Social Sec ER: $62.00 Medicare EE: $14.50 Medicare EE: $14.50 Medicare ER: $14.50 Medicare ER: $14.50 Total Tax $153.00 Total Tax $91.00 If this election was taken the entire (13 week) period of September 1st through December 31st, the employee would receive an additional $806.00 and employer’s tax deposits would be reduced by the same $806.00. However – during the repayment period of January – April of 2021, the employee’s check would look as follows: Gross Wage: $1,000.00 Social Sec EE: <124.00> Medicare EE: <14.50> Net Pay: $861.50 The Employer would also be responsible to submitting the $806.00 in addition to the normal taxes withheld/due during the 13-week period. This would increase the company’s cash flow requirements. There are other factors that the employer must keep in mind. If the tax is deferred and the employee leaves employment and the deferred tax is not collected, the employer is STILL responsible for the tax obligation. Also, a threshold amount has been established based on each pay period. Each pay period is tested separately and bonuses/commissions affect only the pay period in which they are paid. If the total wage & other compensation subject to payroll tax is larger than the amount listed below, none of the wage is eligible for deferral.
Monthly $8,666.67
Twice a month $4,333.33
Bi-Weekly $4,000
Weekly $2,000
Need Help? Schedule a tax or accounting consultation with us. Contact Kristen at kmaracchini@bookkeepingservicesonline.com to schedule your appointment.
Online Bookkeeping Inc.
720.381.4626 info@bookkeepingservicesonline.com