Whether you owe back taxes or current taxes, you may be subject to significant penalties and accrued interest over time if you don't pay. The penalty for non-payment starts with 0.5% of your balance due per month (with a 25% limit on the back taxes you owe). If you overpay your taxes, the IRS will simply return the excess as a refund. It usually takes about three weeks for the IRS to process and issue refunds.
If you owe back income taxes, your refund can be used to pay or offset the amount due. If anything is left over, it will be refunded the way you requested on your tax return, either by direct deposit or check. You should also receive a notification from the IRS that explains why the money was withheld. You can give yourself a raise simply by changing your W-4 form with your employer.
For many small business owners, the self-employment tax is a much greater burden than income taxes. If you simply have too little withheld from your paycheck, you can create a new W-4 form by consulting the Form W-4 section of the main tab of the following year of TaxAct. Take the new W-4 form to your employer's payroll department. Don't send it to the IRS.
For example, 10% of your unemployment benefits may be withheld to pay taxes. That might hurt a little now, but it's much less painful than a big tax bill next spring. To have income taxes withheld from government payments, including social security benefits or unemployment benefits, complete Form W-4V on the IRS website and send it to the payer. 7%, 10%, 15%, or 25% of most government payments can be withheld.
Only 10% of unemployment payments can be withheld from you. If you receive pension or annuity payments, adjust your income tax withholding on Form W-4P, available on the IRS website. Once a quarter, calculate your net income and estimate the amount you owe in taxes. Whenever your situation changes (you get married or divorced or embarking on a project as a freelancer, for example), recalculate your income if necessary and fill out the W-4 form section on the main tab of the next TaxAct Year.
A person in this situation should receive prior notice to compensation explaining how much is owed, how the compensation process works, and how to challenge the debt. No, one of the conditions of your installment agreement is that the IRS will automatically apply any refund (or overpayment) due to the taxes you owe. If it takes more than 45 days for the IRS to send you your refund, you'll likely receive some interest. For some, that means preparing their taxes early in the season to avoid rushing as the tax deadline approaches.
For more information on these non-IRS-related refund compensations, you can call the Office of the Tax Service (BFS) at 800-304-3107 (free of charge). In this case, the Department of the Treasury must send you advance notice of your intention and provide you with an opportunity to challenge the claim or pay it before your refund is withheld. If you can't pay the full amount due at the time you apply, consider one of the payment arrangements offered by the IRS. If you don't owe taxes or your credit is greater than the taxes you owe, you'll get the extra money in your tax refund.
It's a little more work than simply paying too much or hoping for the best, but it's worth it because it gives you much more peace of mind about your position with the IRS. If your refund exceeds the total balance due for all outstanding tax liabilities, including those accrued, you will receive a franchise refund, unless you owe other overdue amounts, such as state income tax, child support, a student loan, or other federal non-tax obligations that are offset by any refund. And since making estimated quarterly payments requires, well, making an estimate, getting the numbers right can be a challenge. Some freelancers and independent contractors are fortunate enough to know how much their annual income will be.
Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing more than 30 hours of tax training each year. . .
