A couple questions that CFR gets every tax season are “Why am I getting assessed an estimated tax penalty?” and “What is an estimated tax penalty?”
The US has a “pay as you go” tax system. Instead of paying your taxes in a lump sum, the IRS expects payments throughout the year.
Most W-2 wage earners don’t realize it, but their withheld tax is being sent to the government by their employer on a quarterly, monthly or semi-weekly basis. It is automatically taken out of their paycheck, so they don’t need to do anything.
This is not the case for clergy. For self-employed individuals and those treated like them (like Clergy), IRS expects you to estimate your tax and to make quarterly payments towards your tax bill. You must make these estimated payments if:
- You expect to owe at least $1,000 in tax for 2020 (This is after applying any refundable credits or withholding)
- You expect your credits and withholding will cover less than
- 90% of the tax on your 2020 return, or
- 100% of the tax on your 2019 return, or
- 110% of the tax on your 2019 return if you earned more than $150,000 jointly or $75,000 filing single or married filing separately.
If you fail to make quarterly estimates, IRS can assess the estimated tax penalty based on how much was unpaid and how late it is, even if you file the return timely and pay with the return. You can avoid the penalty by making deposits towards your taxes throughout the year.
Clergy Financial Resources offers estimated tax projections with your 1040 service, or as a separate service, so you can avoid these penalties on your next year return. For more information, visit our website at https://www.clergyfinancial.com/services/clergy-tax-preparation/estimated-payment-support-clergy/
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369
Tel: (888) 421-0101
Fax: (888) 876-5101