When it comes to making tax payments, employees have it easy. Their employers are obliged to withhold Social Security, Medicare and unemployment taxes from their earnings every pay period. If you are self-employed or work as an independent contractor, the IRS requires you to calculate your estimated tax payments every quarter and remit the amount you owe. You also need to make quarterly estimated tax payments if you have certain other types of income, including interest and dividends from certain types of investments, rental income and income from business ownership.
A common misconception is that it’s alright to skip the quarterly payments, as long as you pay all the taxes you owe annually. This is not true!! To the contrary, the IRS views that as borrowing money from the government without permission… and without paying interest! Employees are paying money to the government through withholding taxes every single pay period. Uncle Sam is already allowing everyone else a 3 month grace period by having them make estimated tax payments every quarter, instead of every two weeks or twice per month, for example.
If you should ever fall behind in your tax payments for any reason, there is a very good chance that you will end up using some type of payment plan to repay the IRS what you owe. If you default on a payment plan, all of the taxes you owe become immediately collectible. At that point, the IRS is free to engage in aggressive collection taxes, like putting liens on your bank accounts or filing a tax lien against your home.
If you fall behind on payments for your payment plan with the IRS, then you are in default. That’s obvious. What is less obvious is that if you fall behind on any tax obligation to the IRS while you are under a payment plan, the IRS will treat that as a payment plan default, too. That includes failing to pay quarterly estimated taxes on time. At that point, the IRS can engage in those aggressive collection tactics– including liens– that make it such a feared federal government agency. In other words, default causes you to lose all the protections of your payment plan. At that point, the entire outstanding tax debt becomes due in full right away!
If you are on an IRS payment plan and anticipate problems making your quarterly tax payments, contact the Law Office of Shawn N. Wright. Also call us if you have missed making one or more estimated payments or have filed your quarterly returns late. We have the expertise to advise you of your options and to negotiate with the IRS on your behalf with to preserve your payment plan and keep you safe from aggressive IRS collection tactics.