Who Needs to Pay Income Taxes
It Doesn't Matter How You Generate the Income
The Internal Revenue Service aka U,ncle S,am wants taxpayers aka U.S. citizens to know that income not subject to withholding, such as income from
may need to make estimated tax payments throughout the year. T his includes freelancers, retirees, investors, businesses and corporations.
What Does Matter?
Paying on time helps taxpayers stay compliant and helps to avoid falling behind on their taxes and the underpayment penalties And unlike signing up to be drafted into the armed forces, paying taxes and the penalties is not optional, U.ncle S.am will collect.
Who needs to pay estimated tax?
- Taxpayers including sole proprietors, partners and S corporation shareholders who expect to have a tax liability of at least $1,000 for the year.
- Corporations that expect to owe tax of $500 or more. See Publication 542, Corporations.
- Individuals earning income from gig work, freelance work or from sales of goods and services, even if they receive a Form 1099-K. Recipients of Form 1099-K, Payment Card and Third Party Network Transactions PDF must use it with other tax records to report income.
How to Pay Your Federal Income Taxes
Don't Be Like Al...Pay Your Taxes
Electronic payment is the most secure, fastest and easiest way to pay. Taxpayers can use:
- The IRS Online Account, Direct Pay with a checking or savings account, credit/debit card or digital wallet. Payment processors may charge a fee if paying with a credit/debit card.
- The Electronic Federal Tax Payment System (EFTPS).
- A check or money order made payable to the “United States Treasury” along with Form 1040-ES.
- The IRS2Go app.
Corporations must use electronic funds transfer, usually EFTPS, to make all federal tax deposits including installment payments of estimated tax.
For more information on payments visit Make a payment.
Need additional assistance?
Get details, worksheets, and calculation help at Estimated taxes.
Make Sure You Know the IRS Tax Calender
Key Deadlines and Dates You Should Know about
Using the IRS Tax Calendar can help you avoid missing important deadlines, view important due dates and actions for key filing deadlines each month.
Key features and benefits:
- Convenience: Pay federal taxes online or by phone, 24/7 or create online account .
- Advance payments: Individuals can schedule estimated payments up to 365 days in advance, and businesses can schedule 120 days in advance.
- Payment history: View your tax payment history.
In essence, U.ncle S.am now provides a modernization of the tax payment process is an effort to move away from paper-based systems to an electronic one that is intended to offer more convenient and efficient ways to fulfill federal tax obligations.
For the latest information about changes or developments please visit Forms & instructions for your specific form or publication.
ARE YOU SELF-EMPLOYED?
What Are Self-Employed Obligations?
As a self-employed individual , generally you are required to file an annual income tax return and pay estimated taxes quarterly.
Self-employed individuals generally must pay Self-Employment (SE) tax as well as income tax.
SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, the wording "self-employment tax" refers to Social Security and Medicare taxes. Before you can determine if you are subject to self-employment tax and income tax, you must figure any net profit or net loss from your business.
You do this by subtracting your business expenses from your business income. If your expenses are less than your income, the difference is net profit and becomes part of your income on page 1 of Form 1040 or 1040-SR. If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income on page 1 of Form 1040 or 1040-SR.
But in some situations your loss is limited. See Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C) , for more information. You have to file an income tax return if your net earnings from self-employment were $400 or more.
If your net earnings from self-employment were less than $400, you may still want to file an income tax return if you meet any other filing requirement listed in the Form 1040 and 1040-SR (Instructions ) .
Tax Planning Is For Everyone!
Planning ahead can help you Stay ready to file an accurate income tax return. Keeping good records can help you reduce, eliminate any federal tax liability, or increase return. Make sure your have the information needed to avoid delays that can slow your tax refund.
Personal information Needed to File
Your name on record with the Social Security Administration (SSA)
Social Security number or individual tax ID number (ITIN) for you and anyone else on your return
If you were a victim of identity theft, your IP PIN
Bank account and routing numbers to get a refund or pay by direct deposit
Most Common Types of Income
People or organizations that paid you during the year are required to report the payments to the IRS on an information return. You may them electronically or by mail in January or February.
Form W-2 or a corrected W-2 show your wages from employers. Here's what to do if you didn't get a W-2.
Form W-2G for lottery and gambling winnings
Form 1099-NEC (Nonemployee Compensation ): Reports payments made to nonemployees, like independent contractors or freelancers, for services rendered.
Form 1099-MISC Miscellaneous Information ): Reports various other income payments of $600 or more, including rents, royalties, prizes and awards, and other work in the gig economy
Form 1099-DIV (Dividends and Distributions): Reports income from dividends and distributions from investments like stocks or mutual funds.
Form 1099-INT (Interest Income) : Reports interest income of $10 or more paid by banks, financial institutions, or other entities.
Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.) : Reports distributions from various retirement accounts and plans, including pensions, annuities, and IRAs.
Form 1099-K for payments from payment cards and online marketplaces
Form 1099-B (Proceeds From Broker and Barter Exchange Transactions) : Reports proceeds from the sale of securities (like stocks and bonds) and from barter exchange transactions.
Form 1099-G for government payments such as unemployment benefits
Form 1099-C (Cancellation of Debt) : Reports when a lender discharges (cancels or forgives) debt of $600 or more owed to them.
Form 1099-S (Proceeds From Real Estate Transactions): Reports proceeds from certain real estate transac tions.
Form 1099-OID (Original Issue Discount): Reports the difference between a bond's stated redemption price at maturity and its issue price when this difference is a discount.
Form 1099-SA (Distributions From an HSA, Archer MSA, or Medicare Advantage MSA): Reports distributions from Health Savings Accounts, Archer Medical S avings Accounts, or Medicare Advantage Medical Savings Accounts.
Form 1099-INT from banks and brokers showing interest you received
Form 1099-DIV for dividends and distributions paid to you
Form 1099-R for retirement plan distributions or pensions or annuities
Form SSA-1099 for Social Security benefits
Form 1099-MISC for other miscellaneous income
Form 1095-A, Health Insurance Marketplace Statement, lets you reconcile advance payments or claims
Records of digital asset transactions
Statements from banks, payment apps or online marketplaces
Checks paid to you
Income Earned for Gig Work IS TAXABLE
Generally, you are self-employed if any of the following apply to you.
- You carry on a trade or business as a sole proprietor or an independent contractor.
- You are a member of a partnership that carries on a trade or business.
- You are otherwise in business for yourself (including in a part-time business or as a gig worker.
Trying to keep up with the increasing cost of living, many of us have entered into the gig economy. A great way to earn income by providing on-demand work, goods or services, some people have taken up gig work not only on a part-time basis, and for others the job is done full-time.
Income from gig work – such as driving a car for booked rides, selling goods online, renting out property or providing other on-demand work – is taxable and must be reported as income on the worker's tax return. Earnings from gig work include payments by credit card, cash, property, goods or virtual currency. Gig workers may be required to make quarterly estimated tax payments.
Self-employed tax payers, such as gig workers, are required to pay all Social Security and Medicare taxes on the income earned from Self-Employed/ gig activity.
Who is an Independent Worker
It's important that the taxpayer is correctly classified while they provide gig economy services. Gig workers may be classified as independent contractors by digital platforms that match workers' services with customer needs. This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor. Taxpayers should review the worker classification information to see how they should be classified. Independent contractors may be able to deduct business expenses depending on tax limits and rules. It's important for taxpayers to keep records of their business expenses .
Self Employment Tax Credit?
Beware Of the Self Employment Tax Credit
The Internal Revenue Service issued a consumer alert following bad advice circulatingon social media about a non-existent “Self Employment Tax Credit ” that’s misleading taxpayers into filing false claims. There is inaccurate information suggesting people qualify for payments of up to $32,000 when they actually do not. In reality, the underlying credit being referred to as the “Self Employment Tax Credit it’s a much more limited and technical credit called Credits for Sick Leave and Family Leave.
The IRS is seeing repeated instances where taxpayers are incorrectly using Form 7202 to claim a credit based on income earned as an employee and not as a self-employed individual. The IRS urges people to check with a trusted tax professional before filing for any “Self Employment Tax Credit ” or any other questionable tax claim circulating on social media.
How to Report and File Your Federal Income Taxes
What is Work Income?
Work income comes from activity you do to earn income, sometimes through an app or website (digital platform), like:
- Drive a car for booked rides or deliveries
- Rent out property or part of it
- Run errands or complete tasks
- Sell goods online
- Rent equipment
- Provide creative or professional services
- Provide other temporary, on-demand or freelance work
Note: This list does not include all types of work income.
If you do work as an independent contractor , you may have to pay estimated taxes. You may benefit from filing a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it's a side job, part-time or temporary.
Unsure if you are an employee or independent contractor? check your worker status.
Refundable Tax Credits How They Work
You can claim credits and deductions when you file your tax return to lower your tax. Make sure you get all the credits and deductions you qualify for. If you have qualified dependents, you may be eligible for certain credits and deductions.
What Are Credits & How To Claim Them
A credit is an amount you subtract from the tax you owe. This can lower your tax payment or increase your refund. Some credits are refundable — they can give you money back even if you don't owe any tax.
To claim credits, answer questions in your tax filing software. If you file a paper return, you’ll need to complete a form and attach it
Here are credits you can claim:
Earned Income Credit- If you earn under a certain income level you qualify for the Earned Income Tax Credit. This is a refundable credit, so you can get back more than you pay in taxes. If you qualify, you can claim it even if you don’t normally file taxes or aren’t required to file
Child Tax Credit- The Child Tax Credit helps families with qualifying children get a tax break. You may be able to claim the credit even if you don't normally file a tax return.
To be a qualifying child for the 2024 tax year, your dependent generally must:
- Be under 17 at the end of the tax year.
- Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece or nephew).
- Not provide more than half of his or her own support for the tax year.
- Have lived with you for more than half the tax year.
- Be claimed as a dependent on your return.
- Not file a joint return for the year (or filed the joint return only to claim a refund of taxes withheld or estimated taxes).
- Be a U.S. citizen, U.S. National or a U.S. resident alien.
- Must have a Social Security Number that is valid for employment and is issued before the due date of your tax return (including extensions).
You qualify for the full amount of the 2024 Child Tax Credit for each qualifying child if you meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return).
Parents and guardians with higher incomes may be eligible to claim a partial credit.
OPTIONS FOR PAYING FEDERAL TAXES
Offer in Compromise for Good Standing
An OIC to Maintain Good Standing
Staying Compliant requires due dilegince be used to pay and file taxes. More often than many might think, the growing IRS tax codes can be a bit hard to understand and when filing federal income taxes many taxpayers get confused.
Credits, deductions, exemptions, oh my! Is how many of us feel. Fortunately You can use your Individual Online Account to check if you’re eligible to file an offer in compromise (OIC), make payments, and file your OIC online. We'll review your OIC and decide if you qualify.
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability or doing so creates a financial hardship. We consider your unique set of facts and circumstances:
- Ability to pay
- Income
- Expenses
- Asset equity
The IRS generally approves an Offer In Compromise when the amount you offer represents the most the IRS can expect to collect within a reasonable period of timer.
You are eligible to apply for an offer in compromise if You:
- Filed all required tax returns and made all required estimated payments.
- Aren't in an open bankruptcy proceeding.
- Have a valid extension for a current year return (if applying for the current year).
- Are an employer and made tax deposits for the current and past 2 quarters before you apply.
If you apply for an offer in compromise and we can’t process your offer, we'll:
- Return your application and offer application fee.
- Apply any offer payment you included to your balance due.
Submit your application
Find forms to submit an application and step-by-step instructions in Form 656-B, Offer in Compromise Booklet. Complete an application package:
- Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms.
- Form 656(s) – you must submit individual and business tax debt (Corporation/ LLC/ Partnership) on separate Forms 656. $205 application fee (non-refundable).
- Initial payment (non-refundable) for each Form 656.
Mail the above to the applicable site listed on Form 656-B. You may file your OIC online, via your Individual Online Account.
