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Can I pay Federal Income tax via Estimated payments instead of withholding

Forum|Forum|4 years ago
January 4, 2022
2 replies
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Background info:

S-corp owned by Husband+wife.

Husband and Wife are the only employees of the S corp.

Wife also has another low paying regular job which pays every 15 days.

However, my S corp just makes one LARGE payroll run on Dec 31.

Here are expected 1040 numbers for 2021.

Taxable Wages = 245k (out of which 230k was paid on Dec 31)

Dividends = 75k

Schedule K = 15k

Capital gain = 0

Total Taxable income = 300k

Approx. Tax = 60k

Estimated Tax payments made so far = 80k

Questions

Q1) As you can see, my Estimated Income Tax payments more than cover my income tax liability. However, it seems I still need to hold approx 40k in federal tax from my Dec 31, 2021 payroll. Can I withhold just $0 income tax? Note: I will withhold and pay appropriate FICA.

Q2) The numbers will remain the same in 2022. How can I pay more via Estimated taxes instead of Withholding? (My reasons for wanting to do this may complicate the discussions but if you think it is necessary, I can elaborate provided you promise not to laugh).

Edited to clarify that this question is only for Income taxes. I will withhold and pay FICA. Also, I am not trying to avoid Income Tax. I am just trying to pay via ES1040 instead of withholding.

Not A Product Question

Best answer by Opus 17

Because the income tax system is supposed to be pay as you go, I suspect that you could be assessed a penalty for not making quarterly estimated payments even if you only issue yourself one paycheck in December and the withholding from that paycheck (and reported to the IRS on your January 15 quarterly form 941) covers your income tax bill for the year.

If you are assessed a penalty and it is your first time, you can request a penalty waiver.

You can certainly make quarterly payments in any amount you choose at the IRS website www.irs.gov/payments. You don’t need to send in a paper form 1040-ES or a paper voucher 1040-V if you make online payments, because your online payment is linked to your Social Security number or tax ID number. You don’t need to use the quarterly payments suggested by TurboTax if you prefer to calculate them a different way.

If you did make estimated federal and state income tax payments during the year, you would not also need to withhold federal and state income tax from your December paycheck. You still of course, have to withhold FICA and Medicare, but the Social Security administration does not assess underpayment penalties based on your annualized income.

Critter-3

Level 15

PLEASE seek local professional assistance to get educated on the S-Corp payroll requirements and the quarterly/annual payroll tax reports you must file even if you are only paying yourself once a year. Filing payroll tax reports timely is not an option is it required. Willfully avoiding SE taxes is considered tax evasion.

T

TaxSAuthor

Level 2

Two things:

1) I worded the question somewhat incorrectly. I will edit it. My question is the manner in which Federal Income taxes are withheld or paid. I am not trying to avoid paying them.

2) I do file all returns timely and pay all my taxes including FICA.

Critter-3

Level 15

Q1) As you can see, my Estimated Income Tax payments more than cover my income tax liability. However, it seems I still need to hold approx 40k in federal tax from my Dec 31, 2021 payroll. Can I withhold just $0 income tax? Yes, of course. Fed/state withholding is an option on a paycheck (W-2) not a requirement.

Q2) The numbers will remain the same in 2022. How can I pay more via Estimated taxes instead of Withholding? Simply increase what you are paying ... the amount that is auto populated on the 1040-ES forms in the TT system is not written in stone. Cross off what is there and enter anything you like. Or go to the IRS and make a payment directly on that site (check your state for their payment options). https://www.irs.gov/payments

O

Opus 17

Answer

Level 15

Because the income tax system is supposed to be pay as you go, I suspect that you could be assessed a penalty for not making quarterly estimated payments even if you only issue yourself one paycheck in December and the withholding from that paycheck (and reported to the IRS on your January 15 quarterly form 941) covers your income tax bill for the year.

If you are assessed a penalty and it is your first time, you can request a penalty waiver.

You can certainly make quarterly payments in any amount you choose at the IRS website www.irs.gov/payments. You don’t need to send in a paper form 1040-ES or a paper voucher 1040-V if you make online payments, because your online payment is linked to your Social Security number or tax ID number. You don’t need to use the quarterly payments suggested by TurboTax if you prefer to calculate them a different way.

If you did make estimated federal and state income tax payments during the year, you would not also need to withhold federal and state income tax from your December paycheck. You still of course, have to withhold FICA and Medicare, but the Social Security administration does not assess underpayment penalties based on your annualized income.

T

TaxSAuthor

Level 2

@Opus 17 wrote:
If you did make estimated federal and state income tax payments during the year, you would not also need to withhold federal and state income tax from your December paycheck.

Thank you.
My 2021 ES1040 payments are 20k Q1 + 35k Q2 + 25k Q3 = 80k

My tax liability will be just 60k. My Dec 31 salary is $230k. But I can withhold $0 from it. Right?