News & Updates

Taxpayers not subject to withholding, such as those who are self-employed, investors or retirees, may need to make quarterly estimated tax payments. Taxpayers with other income not subject to withholding, including interest, dividends, capital gains, alimony, cryptocurrency and rental income, also normally make estimated tax payments.

In most cases, taxpayers should make estimated tax payments if they expect:

• To owe at least $1,000 in taxes for 2022 after subtracting their withholding and tax credits.
• Their withholding and tax credits to be less than the smaller of:
• 90% of the tax to be shown on their 2022 tax return or
• 100% of the tax shown on their 2021 tax return. Their 2021 tax return must cover all 12 months.

Special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year. Publication 505, Tax Withholding and Estimated Tax, provides more information on estimated tax rules. The worksheet in Form 1040-ES, Estimated Tax for Individuals, or Form 1120-W, Estimated Tax for Corporations, has details on who must pay estimated tax.

How to figure estimated tax

To figure estimated tax, individuals must figure their expected Adjusted Gross Income (AGI), taxable income, taxes, deductions and credits for the year.

When figuring 2022 estimated tax, it may be helpful to use income, deductions and credits for 2021 as a starting point. Use the 2021 federal tax return as a guide. Taxpayers can use Form 1040-ES to figure their estimated tax.

The Tax Withholding Estimator on IRS.gov offers taxpayers a clear, step-by-step method to have their employers withhold the right amount of tax from their paycheck. It also has instructions to file a new Form W-4 to give to their employer to adjust the amount withheld each payday.

How to avoid an underpayment penalty

Taxpayers who underpaid their taxes may have to pay a penalty. This applies whether they paid through withholding or through estimated tax payments. A penalty may also apply for late estimated tax payments even if someone is due a refund when they file their tax return.

To see if they owe a penalty, taxpayers should use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Taxpayers can also see the Form 2210 instructions under the "Waiver of Penalty" section. The IRS may waive the penalty if someone underpaid because of unusual circumstances and not willful neglect. Examples include:

• Casualty, disaster or another unusual situation.
• An individual retired after reaching age 62 during a tax year when estimated tax payments applied.
• An individual became disabled during a tax year when estimated tax payments applied.
• Specific written advice from an IRS agent given in response to a specific written request. The taxpayer must provide copies of both.

The fourth and final 2022 estimated tax payment is due January 17, 2023.

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Everyone, from individuals to organizations and businesses, can start now by:

• Securing and duplicating essential tax and financial documents.
• Creating lists of property.
• Knowing where to find information once a disaster occurs.

In the aftermath of a disaster, having the updated documents and other information readily available can help victims apply for the relief available from the IRS and other agencies. Disaster assistance and emergency relief may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area.

Start secure

Taxpayers should keep critical original documents inside waterproof containers in a secure space. These include tax returns, birth certificates, deeds, titles, insurance policies and other similarly important items. In addition, consider having a relative, friend or other trusted person retain duplicate copies of these documents at a location outside the potentially impacted disaster area.

Make copies

If original documents are available only on paper, try scanning them into a digital file format. Saving them in a secure digital location, like a cloud-based storage application, can provide added security and portability.

Document valuables

Maintain a detailed inventory of your property and business contents. Taxpayers can take photos or videos to record their possessions but should also write down descriptions including year, make and model numbers, where appropriate. After a disaster hits, this kind of documentation can help support claims for insurance or tax benefits. The IRS disaster-loss workbooks can help individualsPDF and businessesPDF compile lists of belongings or business equipment.

Employer fiduciary bonds

Employers using payroll service providers should check if their provider has a fiduciary bond in place to protect the employer against a possible provider default.

Most employers already use the Electronic Federal Tax Payment System (EFTPS) to make their federal tax deposits and business tax payments. Because these payments can easily be made either by phone or online, EFTPS offers an especially convenient option when a disaster may displace many businesses and their employees. It's also easy to track tax payments and receive email alerts through EFTPS. Any business that doesn't have one can create an EFTPS account.

Know where to go

Reconstructing records after a disaster may be required for tax purposes, getting federal assistance or insurance reimbursement. Most financial institutions can provide statements and documents electronically, an option that can aid the reconstruction process. For tips on reconstructing records, visit IRS's Reconstructing Records.

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"Each year, eligible taxpayers overlook money saving deductions and credits that can help them with the cost of raising a family, daycare, paying for college, saving for retirement or making a donation to charity," said IRS Commissioner Chuck Rettig. "We want to ensure they're aware of all the tax benefits for which they may qualify."

This year, the IRS received about 19 million requests for extensions to file until October 17. Those who qualify can prepare and file their return for free with IRS Free File. Electronically filing and choosing direct deposit can help taxpayers get their refund faster. If they owe, sending the tax return with full payment prevents additional interest and penalties. There's no penalty for failure to file if the taxpayer is due a refund.

Filing tips for taxpayers who haven't filed their 2021 tax return are available on IRS.gov.

Taxpayers should consider the following tax benefits when filing their tax return:

• Earned Income Tax Credit: Qualified low- to moderate-income workers and families may get a tax break.
  
• Child Tax Credit: Families can claim this credit, even if they received monthly advance payments during the last half of 2021.
  
• Child and Dependent Care Credit: Families who pay expenses for the care of a qualifying individual so they can work, or look for work, can get a tax credit worth up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons.
  
• Recovery Rebate Credit (RRC): Those who missed out on last year's third round of Economic Impact Payments (EIP3), also known as stimulus payments, may be eligible to claim the RRC. This credit can also help eligible people whose EIP3 was less than the full amount, including those who welcomed a child in 2021.
  
• Deduction for gifts to charity: The majority of taxpayers who take the standard deduction can deduct eligible cash contributions they made to charity during 2021. Married couples filing jointly can deduct up to $600 in cash donations and individual taxpayers can deduct up to $300 in donations. In addition, itemizers who make large cash donations often qualify to deduct the full amount in 2021.
  
• American Opportunity Tax Credit and the Lifetime Learning Credit: Tax credits for higher education can help offset taxpayers' tuition and other costs by reducing the amount of tax owed on their tax return.
  
• Retirement Savings Contributions Credit (Saver's Credit): A tax credit is available for making eligible contributions to an individual retirement account or employer-sponsored retirement plan.

Helpful reminders

The IRS urges taxpayers to ensure they have all their year-end statements in hand before filing their 2021 return. Besides W-2s and 1099s, this includes two statements issued by the IRS – Letter 6419, showing their total advance Child Tax Credit payments, and Letter 6475, showing their total EIP3 payments.

Individuals can also use their IRS Online Account to see the total amounts of their third round of Economic Impact Payments or advance Child Tax Credit payments. Married spouses who received joint payments will each need to sign into their own account to retrieve their separate amounts.

Taxpayers can find answers to questions, forms and instructions, and easy-to-use tools online at IRS.gov. They can use these resources to get help when it's needed at home, at work or on the go.

Adjust 2022 withholding now to avoid tax surprises next year

Summer is a great time for taxpayers to check their 2022 withholding to avoid a tax surprise when they file next year. Life events like marriage, divorce, having a child or a change in income can affect taxes. Too little tax withheld can lead to a tax bill or penalty. Too much can mean the taxpayer won't have use of the money until they get their tax refund in 2023.

The IRS Tax Withholding Estimator on IRS.gov helps employees assess their income tax, credits, adjustments and deductions, and determine whether they need to change their withholding. If a change is recommended, the estimator will provide instructions to update their withholding with their employer, either online or by submitting a new Form W-4, Employee's Withholding Allowance Certificate.

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For individuals, the rate for overpayments and underpayments will be 6% per year, compounded daily, up from 5% for the quarter that began on July 1. Here is a complete list of the new rates:

• 6% for overpayments (5% for corporations). (payments made in excess of the amount owed)
• 3.5% for the portion of a corporate overpayment exceeding $10,000.
• 6% for underpayments. (taxes owed but not fully paid)
• 8% for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, for a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points, and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during July 2022.

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The IRS, state tax agencies and the tax industry – working together as the Security Summit – reminded tax professionals that they should contact the IRS immediately when there's an identity theft issue while also contacting insurance or cybersecurity experts to assist them with determining the cause and extent of the loss.

"Tax pros must be vigilant to protect their systems from identity thieves who continue to look for ways to steal data," said IRS Commissioner Chuck Rettig. "Practitioners can take simple steps to remain on the lookout for signs of data and identity theft. It's critical for tax pros to watch out for these details and to quickly take action when tell-tale signs emerge. This can be critical to protect their business as well as their clients against identity theft."

This is the third in a summer series of five Security Summit news releases aimed at raising awareness among tax professionals about data security. The special Protect Your Client; Protect Yourself campaign is designed to help protect against tax-related identity theft by increasing attention on basic security steps that tax professionals and others should take to protect sensitive information.

One common concern the IRS hears from tax professionals is that they did not immediately recognize the signs of data theft.

Summit partners are urging tax professionals to watch out for these critical signs:

• Client e-filed returns rejected because client's Social Security number was already used on another return.
• More e-file acknowledgements received than returns the tax pro filed.
• Clients responded to emails the tax pro didn't send.
• Slow or unexpected computer or network responsiveness such as:
• Software or actions take longer to process than usual,
• Computer cursor moves or changes numbers without touching the mouse or keyboard,
• Unexpectedly locked out of a network or computer.

Tax professionals should also watch for warning signs when clients report they've received:

• IRS Authentication letters (5071C, 6331C, 4883C, 5747C) even though they haven't filed a return.
• A refund even though they haven't filed a return.
• A tax transcript they didn't request.
• Emails or calls from the tax pro that they didn't initiate.
• A notice that someone created an IRS online account for the taxpayer without their consent.
• A notice the taxpayer wasn't expecting that:
• Someone accessed their IRS online account,
• The IRS disabled their online account,
• Balance due or other notices from the IRS that are not correct based on return filed or if a return had not been filed.

These are just a few examples. Tax pros should ensure they have the highest security possible and react quickly if they sense or see something amiss.