I Did Not Pay 1099 Quarterly

[SamsPup]

Stupid - yes. I have been a 1099 as a side gig for 2 years and always paid quarterly.
This year I worked some other jobs and didn't think I had made as much.
Anyway my stupidity. It is 18K total earnings. I have 1,700 in write offs not including my 200 sq ft work space. Plus not including depreciation of computer and phone.

I have yet to file, waiting on a document from an employer that was a W4. How bad of hot water can I be in?
1. I know that overpayment on my other job that isn't a 1099 can help. As well as any overpayment my spouse paid at their job which isn't a 1099.
2. I know that 18K isn't all that much. Usually I I pay 30% to IRS and 5% to my state flat tax.
3. I have a couple grand in savings for my 2024 estimated payment, thought I would hold on to that until after I see the damage.
4. Can I do a payment plan and I have credit cards that have cash back. if the cash back = more than the fees then could paying a monthly payment on cc then paying off cc to collect my cash back, even if it's a few bucks, be worth while? I pay off my CC's every month. I would never pay it all on my CC at once as 29% APR is more than the IRS I read can make you pay in % owed back. I would only use it maybe to pay the MONTHLY payment IF it made sense.
5. How long can the IRS extend a payment plan out. Household is married joint filing and we probably together made 115K. We have student loan deduction, mortgage, car taxes deduction and a dependent.

I made one thousand dollars more on my 1099 this year than last year. For one quarter I made nothing. So I am not sure how the IRS will look at it.

 

[cbg]

@Taxing Matters

We have a tax attorney and former IRS employee who regularly posts here. I've tagged him; I'd wait for his response.

 

[SamsPup]

@Taxing Matters

We have a tax attorney and former IRS employee who regularly posts here. I've tagged him; I'd wait for his response.

Thanks. I know I'll owe a few thousand which I can pay relatively soon, but as for penalties, I have been all over the IRS site and they go from 5% to 25%. I know some repayments allow for 3 years, I can get it paid in about 3 months of hard work maybe 4. Plus paying this years. I was hospitalized, needed a lot for medical, didn't even work at my free lance for some of the year, my payments ranged from 200 bucks at a time to a thousand. With the cost of living going up and the sporadic payments, I just didn't think I had made 18K. And I legit thought i had made the first 2 quarters. But, on the IRS site...I didn't.

I don't want to end up owing more than 10K if I can help it.

 

[Taxing Matters]

Ok, I'm assuming you are asking about your 2023 federal individual income tax return (Form 1040) and that by "1099 side gig" you mean that you had income from self-employment. The persons for whom you worked may or may not file a 1099-NEC for the amounts they paid you, but you must include all your self-employment income on your tax return. This means you should have an adequate system of business records to keep track of all your self-employment income and expenses. That will help you not only with filing correct income tax returns, but is also a good tool for you to see how your business is doing and may help you spot areas in which you can improve.

The deadline to file your 2023 federal income tax return is April 15, 2024. That is also the date you are required to pay any tax due. You may request a six month extension to file, but that does not give you an extension to pay what is owed. The extension may be invalid if you don't have at least 90% of your tax paid by the April 15 deadline. So you don't have hit the exact amount of tax on April 15 to get the extension, but you need to have most of paid. Information on requesting the extension is found on the IRS website here: Extension of Time to File. Thus, you at least want to get a pretty good idea of about what you will owe before April 15. If you are going to owe a significant amount of tax that you cannot pay by April 15, be sure to at least file your return on time. The penalty for late filing is expensive, 5% of the unpaid tax every month that the tax remains unpaid, with a cap of 25%. If you can't pay it all by April 15 but can afford an installment agreement to pay it off, you may attach the form to request an installment agreement to your return when you file, or contact the IRS about an installment agreement when you get the first bill for the underpayment. If you only need a few weeks or months more to pay, contact the IRS when you get the bill for what you owe and ask for that short extension. Chances are good that you will get it, at least if you've not owed delinquent tax before. But then make sure you follow through and pay as promised. If you aren't sure you can pay it in 4 months or less, just ask for the installment agreement. You may always pay it off early.

The penalty for faiure to make estimated tax payments, despite being called a penalty, is really just interest you are paying from the date the payment was due until April 15. This penalty is generally not very big. This would not be my focus if I were in your position.

What I suggest you do is (1) get the return prepared once you have all the information needed so you know exactly what you'll owe; (2) file the return on time or timely request an extension, and pay as much of what you owe as you can by April 15. If you don't pay the tax in full, you will get a bill from the IRS about 3-4 weeks later. That notice is required by law, so you'll get whether you have already set up an installment agreement or other arrangement to pay it.

If you requested an installment agreement, pay close attention to the instruction regarding when and where to send your payments. Note that the IRS may still record a notice of its lien in your county or state recording office even if you are on an installment agreement, but your chances of that happening is lower when you owe a relatively small amount of tax or if you get the installment agreement early. If you make all the required installment payments, recording that notice (if the IRS does that) will be the only collection action it will take, so you won't need to worry about your bank account or wages being levied, etc. There is a user fee you pay to get the installment agreement and a late payment penalty and interest will continue to get added to your liability until you pay if off. So the sooner you are able pay it off, the less it will cost you.

 

[Bluefavorite]

Ok, I'm assuming you are asking about your 2023 federal individual income tax return (Form 1040) and that by "1099 side gig" you mean that you had income from self-employment. The persons for whom you worked may or may not file a 1099-NEC for the amounts they paid you, but you must include all your self-employment income on your tax return. This means you should have an adequate system of business records to keep track of all your self-employment income and expenses. That will help you not only with filing correct income tax returns, but is also a good tool for you to see how your business is doing and may help you spot areas in which you can improve.

The deadline to file your 2023 federal income tax return is April 15, 2024. That is also the date you are required to pay any tax due. You may request a six month extension to file, but that does not give you an extension to pay what is owed. The extension may be invalid if you don't have at least 90% of your tax paid by the April 15 deadline. So you don't have hit the exact amount of tax on April 15 to get the extension, but you need to have most of paid. Information on requesting the extension is found on the IRS website here: Extension of Time to File. Thus, you at least want to get a pretty good idea of about what you will owe before April 15. If you are going to owe a significant amount of tax that you cannot pay by April 15, be sure to at least file your return on time. The penalty for late filing is expensive, 5% of the unpaid tax every month that the tax remains unpaid, with a cap of 25%. If you can't pay it all by April 15 but can afford an installment agreement to pay it off, you may attach the form to request an installment agreement to your return when you file, or contact the IRS about an installment agreement when you get the first bill for the underpayment. If you only need a few weeks or months more to pay, contact the IRS when you get the bill for what you owe and ask for that short extension. Chances are good that you will get it, at least if you've not owed delinquent tax before. But then make sure you follow through and pay as promised. If you aren't sure you can pay it in 4 months or less, just ask for the installment agreement. You may always pay it off early.

The penalty for faiure to make estimated tax payments, despite being called a penalty, is really just interest you are paying from the date the payment was due until April 15. This penalty is generally not very big. This would not be my focus if I were in your position.

What I suggest you do is (1) get the return prepared once you have all the information needed so you know exactly what you'll owe; (2) file the return on time or timely request an extension, and pay as much of what you owe as you can by April 15. If you don't pay the tax in full, you will get a bill from the IRS about 3-4 weeks later. That notice is required by law, so you'll get whether you have already set up an installment agreement or other arrangement to pay it.

If you requested an installment agreement, pay close attention to the instruction regarding when and where to send your payments. Note that the IRS may still record a notice of its lien in your county or state recording office even if you are on an installment agreement, but your chances of that happening is lower when you owe a relatively small amount of tax or if you get the installment agreement early. If you make all the required installment payments, recording that notice (if the IRS does that) will be the only collection action it will take, so you won't need to worry about your bank account or wages being levied, etc. There is a user fee you pay to get the installment agreement and a late payment penalty and interest will continue to get added to your liability until you pay if off. So the sooner you are able pay it off, the less it will cost you.

I don't need an extension. Yes, my comlany sends a 1099 to me and the IRS. I plan to file as soon as a W2 I am waiting on arrives so, again, I will know what to owe.

I plan on asking for a payment plan.

I wanted to know if any tax pros know about interest and penalties I may be levied as on the IRS site they range from 5% to 20%. Yes I have all my records, deductions. Everything. I just did not pay quarterly on my 1099 income. This is not my first year as a 1099 worker. Been one 10 years. My first year not paying. I have an accurate system...just could not afford to pay my taxes and medical bills and student loans plus gas, auto repairs and food this year and pulled too much from savings.

 

[quincy]

I don't need an extension. Yes, my comlany sends a 1099 to me and the IRS. I plan to file as soon as a W2 I am waiting on arrives so, again, I will know what to owe.

I plan on asking for a payment plan.

I wanted to know if any tax pros know about interest and penalties I may be levied as on the IRS site they range from 5% to 20%. Yes I have all my records, deductions. Everything. I just did not pay quarterly on my 1099 income. This is not my first year as a 1099 worker. Been one 10 years. My first year not paying. I have an accurate system...just could not afford to pay my taxes and medical bills and student loans plus gas, auto repairs and food this year and pulled too much from savings.

Bluefavorite, are you using two different accounts? This thread was started by SamsPup.

 

[Bluefavorite]

Bluefavorite, are you using two different accounts? This thread was started by SamsPup.

Roommate.
Does it matter?

 

[Just Blue]

Roommate.
Does it matter?

Yes, it does matter. Makes it really confusing.

 

[Taxing Matters]

I wanted to know if any tax pros know about interest and penalties I may be levied as on the IRS site they range from 5% to 20%.

Ok, since you indicate you plan to file by April 15 and don't need an extension you won't get hit with the late filing penalty. That's one of the more expensive penalties, 5% of the unpaid tax per month that it remains unpaid until the return is filed, reduced by the amount of the late payment penalty charged in the same month. The late payment penalty starts at 0.5% per month, but it can go up or down based on later events, which I'll cover in a bit. What all so far means is that typically when a tax return is filed late with a balance due owed, you get charged 4.5% late filing penalty per month on the unpaid tax until the cap of 25% of the unpaid tax is reached. It only takes filing 6 months late to reach that cap. This is one of the bigger penalties and it's easy enough to avoid, just file the return on time, even if you owe tax you can't pay all at once. The mistake that I've seen too many people with balances due make is that they file late because they are afraid of what the IRS will do when they file a return owing tax they can't pay. But the IRS won't do anything drastic about that balance as long as you don't ignore it.

So, no late filing penalty for you if you file on or before April 15. You're going to have a balance due and ask for an installment agreement. The late payment penalty starts out at 0.5% per month that the tax remains unpaid, with a cap of 25% of the balance due. If you are approved for an installment agreement before the IRS sends out what IRS collection personnel call the final notice then your late payment penalty is reduced by half to just 0.25% per month. If you don't get any agreement in place before you receive that final notice, the late payment penalty will instead double to 1% per month. Your plan to ask for the installment agreement right away will prevent that and, once you have the agreement in place, you'll have just 0.25% per month late payment penalty and interest. The final notice is a notice that comes by certified mail and warns you that if you don't pay the amount owed, make arrangements to pay it, or file for a collection due process hearing within 30 days of the date on the letter the IRS intends to start attaching income and assets to collect what you owe. That usually starts with the IRS computer sending a levy to hit your bank account or attach your wages. The final notice on an individual income tax return liability is usually the 3rd or 4th collection letter the IRS sends. Each collection letter is about a month apart and ends once you have resolved the payment issue by paying what is owed, entering into an installment agreement, or making some other arrangement to satisfy the liability. In some instances the final notice may be the 2nd one you get, but that typically occurs on business accounts, not individual income tax. The first notice you get, and the IRS will always send it, is the demand notice that the tax law requires the IRS to send to you.

You might also have a penalty for failure to make estimated tax payments. This is a one time penalty that is computed based on the interest rate that would apply to that estimated payment from the date it was due to the earlier of the date you pay it or April 15. Basically each payment will end up with a penalty at an annual rate of 7% (for the first two payments) and 8% (for the last two payments). This is a notoriously difficult penalty to compute on your own (Form 2210 is used for that) but if you don't compute it yourself the IRS will just do it for you and send you letter telling how much it is. Overall, you can probably expect the estimated tax payment penalty to come out to a total of somewhere around 5% of the tax you didn't pay (that's because interest doesn't run a full year on any of the payments, and each payment has a shorter delinquency period, reducing the total amount of penalty charged for that payment).

The bottom line, if you file on time, ask for the installment agreement and get that approved, you are looking at a late filing penalty of 0.25% per month until the tax is paid, an estimated tax penalty that will be perhaps about 5% or so (that's just an estimate on my part, I'd have to work through the exact amounts and payment dates to know the exact penalty). The estimated tax penalty is just a one time penalty. And interest on the liability. The rate of interest changes every quarter based on changes in the applicable federal rate (AFR), which is the rate the federal reserve charges banks. Currently the interest charge on outstanding amounts owed to the IRS by individuals is an annual rate of 8%. The interest is compounded daily, which works out to be an effective annual interest rate of 8.3%. By filing on time and asking for an installment agreement right away the total interest and penalty you'll isn't terrible, though obviously no one likes having to pay penalties and interest of any amount. The faster you pay off what you owe, the less total interest and late payment penalty you'll pay.

I know this is a lot of detail to take in. If you have some questions about it, reply back with the questions and I'll do my best to answer them.

By the way, the 20% penalty you mentioned is the penalty the IRS charges if you understate the tax that is due on your return, either by failing to include income you received or by claiming deductions and/or credits you were not entitled to take. It's officially known as the accuracy related penalty (what used to be called the negligence penalty). The penalty is 20% of the amount of the tax underpayment. If you file an accurate return, you won't have to worry about this penalty.

 

[adjusterjack]

You might also have a penalty for failure to make estimated tax payments.

There are two methods for calculating the penalty. One of them may be more favorable if income fluctuated during the year.

It's been a long time so I don't remember which is which. But I do remember how excruciating it was to fill them out. LOL.

2023 Form 2210 (irs.gov)

 

[Taxing Matters]

There are two methods for calculating the penalty. One of them may be more favorable if income fluctuated during the year.

It's been a long time so I don't remember which is which. But I do remember how excruciating it was to fill them out. LOL.

2023 Form 2210 (irs.gov)

The IRS assumes that the taxpayer's income was earned evenly throughout the year when it calculates the penalty. Using the Form 2210 is most advantageous when the majority of the income was earned in the last half of the year. Doing that requires using the annualized income (AI) method, which gets even more cumbersome to complete than the normal method. Whether the savings by doing that is worth the aggravation of tackling one of the hardest forms to complete on an individual income tax return is up to each person to decide. For most people, the savings isn't huge and they decide not bother with it. I don't know if I'd it for my return by hand either. My time would be better spent doing client work for which I get paid. My tax program will do the 2210 computations, though, so it's much easier and faster; the time to give the program the information on my estimated payments made during the year isn't bad. Anyone using a commercial tax prep program and may have an estimated tax penalty should see if their program includes completing the Form 2210.

 

[LdiJ]

I don't need an extension. Yes, my comlany sends a 1099 to me and the IRS. I plan to file as soon as a W2 I am waiting on arrives so, again, I will know what to owe.

I plan on asking for a payment plan.

I wanted to know if any tax pros know about interest and penalties I may be levied as on the IRS site they range from 5% to 20%. Yes I have all my records, deductions. Everything. I just did not pay quarterly on my 1099 income. This is not my first year as a 1099 worker. Been one 10 years. My first year not paying. I have an accurate system...just could not afford to pay my taxes and medical bills and student loans plus gas, auto repairs and food this year and pulled too much from savings.

A few things...

An installment agreement can go out 72 months. Even if you plan on paying it fairly quickly I generally recommend setting the installment at the minimum the IRS will accept, which is the balance due divided by 72. My reasoning for recommending that is that you are always free to pay as big of a payment each month as you like, but you can never pay less than the amount set in the installment plan. Therefore, by setting it as low as possible you give yourself wiggle room in case of financial emergencies with less risk that you will not be able to make the payment set in the plan.

The bigger penalty is the failure to file penalty, so as long as you file on time you won't have to deal with the bigger penalty. The failure to pay penalty, which is 1/2 per month is cancelled out if you have an installment agreement. With an installment agreement you have to pay the setup fee and interest. The IRS interest rates are running about 8% these days.

The penalty for failing to make estimated payments is fairly low. Of all of the potential penalties it runs the lowest. Read here for more information:

Underpayment of Estimated Tax by Individuals Penalty | Internal Revenue Service (irs.gov)

 

[Bali Hai Again]

A few things...

An installment agreement can go out 72 months. Even if you plan on paying it fairly quickly I generally recommend setting the installment at the minimum the IRS will accept, which is the balance due divided by 72. My reasoning for recommending that is that you are always free to pay as big of a payment each month as you like, but you can never pay less than the amount set in the installment plan. Therefore, by setting it as low as possible you give yourself wiggle room in case of financial emergencies with less risk that you will not be able to make the payment set in the plan.

The bigger penalty is the failure to file penalty, so as long as you file on time you won't have to deal with the bigger penalty. The failure to pay penalty, which is 1/2 per month is cancelled out if you have an installment agreement. With an installment agreement you have to pay the setup fee and interest. The IRS interest rates are running about 8% these days.

The penalty for failing to make estimated payments is fairly low. Of all of the potential penalties it runs the lowest. Read here for more information:

Underpayment of Estimated Tax by Individuals Penalty | Internal Revenue Service (irs.gov)

Interesting. When you loan the Treasury your money (to help with the runaway national debt) they pay you a little more than 5%. When you owe the Treasury money they charge you 8%. Quite a racket.

 

[Zigner]

Interesting. When you loan the Treasury your money (to help with the runaway national debt) they pay you a little more than 5%. When you owe the Treasury money they charge you 8%. Quite a racket.

No different than a bank giving 5% interest (if you're lucky) on a savings account, but charging double-digits in interest for loans. In fact, with that in mind, a 3% difference doesn't seem too bad.

 

[adjusterjack]

Interesting. When you loan the Treasury your money (to help with the runaway national debt) they pay you a little more than 5%. When you owe the Treasury money they charge you 8%. Quite a racket.

The Treasury doesn't charge you interest unless you are delinquent in paying your taxes. However, you do give them an interest free loan when your taxes are withheld.

You can avoid lending them more than they deserve by having taxes withheld that are less than the tax you have to pay.

Unfortunately, taxpayers prefer getting a refund rather than writing a check.