Friday, June 19, 2015

Estimated Taxes and Penalty Fees - Quarterly Payments on Income Taxes

I am very good about income taxes and each year I file my taxes well before the deadline. Usually it is a long process but you just have to take it step by step and make sure everything is correct and complete. Over the years I have never had any issues, except for recently when I received a notice for a Late Estimated Payment Penalty.

When I saw this, I was confused and figured it must be an error because I know I filled the taxes well before the deadline. So I called them up and talked with one of the reps who checked on it. She explained that since I had owed over $500 on the previous years taxes, that I was expected to pay the income tax in quarterly payments throughout the year.

This was the first I had heard about this. Up until this point, I had never been in the situation that required taxes to be paid ahead of time throughout the year. I learned that if you are self employed and do not have taxes withheld during the year by an employer, you are required to pay the estimated amount 4 times throughout the year.

The rep recommended that I write to the Department of Revenue to ask for an elimination of the penalty due to the fact that I had no idea about this policy until I received the notice of late penalty. So I wrote to them and sent in the payment just in case they would not excuse it. I am currently waiting to see what happens and will update this entry with the results.

I don't mind paying the estimated income tax payments throughout the year, but I think they need to make it more clear or let you know ahead of time if you are required to do this rather than sending you a late fee 6 months later. I also wonder why they expect people to submit payment 4 times a year, but they only give refunds once a year. It does not seem fair in this case.

Anyway so I took the time to set up the online payments for state as well as federal income tax. It definitely took some research just to figure out how to set it up to make the payments. I got the state set up and enrolled for the federal which takes longer to verify.

It is more inconvenient now to have to keep track of 8 extra payments throughout the year but at least when the April tax date comes around things should be pretty even with the estimated payments already submitted.

Anyone else get this Late Estimated Payment Fee unexpectedly? Should people who are self employed have to pay income taxed throughout the year? Feel free to share any comments below.

Update 6-22-15: So they didn't waste any time cashing the check I sent them in case they would not excuse the late penalty.  I'm not too pleased about that. Hopefully they at least respond to the letter and give an explanation as why it was not excused. 

Update 8-30-15:  Unexpectedly today I checked the mail and there was a letter with a refund for the amount I paid for the late fee penalty. I thought I was out of luck because they had cashed the check already but I guess it was delayed and they reviewed the situation and agreed to refund the fee!

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