Estimated Taxes

Forum|Forum|4 years ago
March 9, 2022
4 replies
20 views

Hi,

I just left my job and switched to contracting. I know I have to pay quarterly estimated taxes. However, right before I left my job I got a sizeable bonus payout and due to this the IRS and state withheld a significant portion, so much that I know I will have overpaid my taxes by about $5K based on the fact that I know in my contracting role my hours will greatly reduce and my income won't be very high at the end of the year. Since I've overpaid on the W2 earnings that I know I would get back in a refund at the end of the year, can I adjust my estimated tax payments down since they would be offset by the overpayment or will that cause penalties because they are from different sources?

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SundayInSalem

Level 8

Yes. You can apply some or all of your 2021 refund towards next year's tax.

Check out How do I apply my refund to next year's (2022) taxes?

The IRS levies a penalty for underpayment of estimated tax if you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments.

Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

ndp4949Author

Level 2

Thanks for the reply. So my question relates more to applying the overpayment of taxes I paid from my W2 job this year to the estimated tax payments I could owe for the remainder of this year.

For example, lets say i paid $10K this year in W2 withholdings but I know my taxes should have only been $2K for the W2 job, can I just not make further estimated taxes and apply the remaining $8K to what I would owe for the contracting? I'd rather not have to wait til next year when I file to get that refund, I;d rather just keep all my contracting money to make up the overpayment.

Cynthiad66

Level 14

Yes you can make adjustments to estimated payments because you have withholdings that will most likely cover any taxes due. To answer your first question, ye you can adjust your estimated payments down and perhaps in the fourth quarter, which is due the following January, make additional adjustments to make sure you do not have a huge balance due.

@ndp4949

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