So I’m reading that we are supposed to pay taxes every quarter? I’ve been setting aside 25% of every payday to account for what I anticipate to owe on Tax Day 2023, but is this not what I should be doing? Am I going to be penalized for withholding taxes?
Or can I still just pay it in one lump sum when I file in April?
Great job on setting aside the 25% you mentioned, an additional thing to do is go the IRS site and make a payment each quarter. See link Here for more info.
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You are required to make quarterly estimated payments. Failing to make estimated payments can lead to an underpayment penalty even if you pay in full when you file your return. You may be exempt from the penalty if this is your first year in business, you will not be penalized if you meet one of these tests:
1. You owe less than $1000 at tax time.
2. Your payments are more than 90% of your tax liability.
3. Your payments are 100% of last years tax liability. Your tax liability is the net that the IRS keeps. If you paid $5000 in payments or job withholding and got a $1000 refund, your liability was $4000. Likewise, if you paid $5000 in payments or job withholding and owed $1000 more, your tax liability was $6000.
Estimated payments are due on the following schedule
|For income earned||estimate is due|
You can make payments electronically at www.irs.gov/payments. Be sure to select 2022 and "estimated payment" from the menus.
Don't forget that you likely owe estimated tax payments to your state as well. State taxes are 3%-13% depending on your state and your income.