Keeping up with tax deadlines can be a challenge, especially for employers who need to withhold taxes for employees and for individuals with varying income sources. This blog post will serve as your guide to important tax deadlines in June, covering both employer responsibilities and individual filing requirements.
For Employers: Reporting Tips for Employee Tips
If you have employees who receive tips, you’ll need to be aware of the deadline for reporting those tips to the IRS. Employees who earn more than $20 in tips during a month are required to report them to their employer on Form 4070 by June 10th. As an employer, you’re then responsible for withholding federal income tax and Social Security/Medicare taxes (FICA) from the reported tips.
Here’s a breakdown of the process:
- Employees report tips: Employees earning over $20 in tips per month must report them to their employer on Form 4070 by June 10th.
- Employer withholds taxes: Employers withhold FICA taxes and income tax from the reported tip amount.
- Withholding deducted from wages: In most cases, the withheld taxes are deducted from the employee’s regular wages.
- Insufficient wages for withholding: If an employee’s regular wages aren’t enough to cover the tax withholding, the employer will report the uncollected amount on the employee’s W-2 form (box 12). The employee will be responsible for paying the uncollected tax when they file their tax return.
Estimated Tax Payments for Individuals (and a Way to Avoid Penalties)
June 15th is also the due date for the second quarter estimated tax payment for the current tax year (2023 in this example). The US tax system is based on “pay-as-you-earn,” meaning taxes are owed throughout the year, not just in a lump sum at tax filing time. To facilitate this, the IRS offers different options for taxpayers to prepay their taxes:
- Payroll withholding for employees (handled by employers)
- Pension withholding for retirees
- Estimated tax payments for self-employed individuals and those with income not covered by withholding
If you don’t prepay enough in estimated taxes, you may be subject to an underpayment penalty. This penalty is calculated quarterly and based on the federal short-term interest rate plus 3 percentage points.
Fortunately, there are ways to avoid this penalty! The IRS offers “safe harbor” rules that specify minimum prepayment amounts. Here’s a breakdown of the two main safe harbor options:
- Safe Harbor 1: Based on Current Year’s Tax: If your estimated tax payments equal or exceed 90% of what you owe in taxes for the current year, you’ll avoid the penalty.
- Safe Harbor 2: Based on Prior Year’s Tax: This safe harbor is generally 100% of your prior year’s tax liability. However, for taxpayers with an Adjusted Gross Income (AGI) exceeding $150,000 (or $75,000 for married filing separately), the threshold is 110% of the prior year’s tax.
Example: Let’s say your tax for the year is $10,000 and your estimated tax payments total $5,600. You still owe $4,400 on your tax return. To see if you owe a penalty, let’s look at the safe harbor exceptions:
- Safe Harbor 1 (Current Year): Since 90% of $10,000 is $9,000, your prepayments fall short and you wouldn’t qualify for this exception.
- Safe Harbor 2 (Prior Year): Now, let’s say your prior year’s tax was $5,000. Since your prepayments of $5,600 are greater than 110% of the prior year’s tax ($5,500), you qualify for this safe harbor and avoid the penalty.
This example highlights the importance of ensuring your estimated tax payments are adequate, especially if your income significantly increases. Large income gains from stock sales, property sales, bonuses, or retirement can all impact your tax liability. Remember, timely payments are also crucial to qualify for the safe harbor exception.
Important Note: State tax deadlines and safe harbor rules may differ from federal guidelines. Consult with a tax professional or your state’s Department of Revenue for specific details.
Taxpayers Living Abroad
US citizens or resident aliens living and working outside the US and Puerto Rico have a June 15th deadline to file their 2022 income tax return and pay any tax due. If you haven’t completed your return and need more time to file, you can request a four-month extension by submitting Form 4868. This will extend your filing deadline to October 16th.
Combat Zone Exception: Military personnel serving in combat zones or qualified hazardous duty areas may be eligible for further filing deadline extensions.
Beware of Penalty Confusion: An extension to file is not an extension to pay. If you anticipate owing taxes, estimate the amount and include a payment with your extension request. Failing to pay on time will result in late payment penalties and interest charges.
Combat Zone Extensions
For military taxpayers in combat zones or qualified hazardous duty areas, deadlines for filing and other tax actions with the IRS are extended. This also applies to service members involved in contingency operations like Operation Iraqi Freedom or Enduring Freedom. The extension is for 180 days following the later of:
- The last day serving in the combat zone/duty area or contingency operation.
- The last day of continuous hospitalization for injuries sustained during service.
- Plus, any remaining days left to take an action with the IRS when entering the combat zone/duty area.
Don’t Delay to Avoid Penalties
While filing an extension may seem tempting, it’s important to remember the late filing penalty of 5% per month (up to a maximum of 25%). This can be a significant financial burden. In most cases, it’s preferable to file your return on time, even if you can’t pay the full amount owed. You can then explore options like an installment agreement, which allows you to spread out tax payments over a period of up to 72 months.
We Can Help!
If you have questions about filing extensions, installment agreements, or any other tax-related matters, don’t hesitate to contact our office. We’re here to assist you in navigating tax deadlines and ensuring you remain compliant with IRS regulations.
Weekends & Holidays
If a tax deadline falls on a weekend or legal holiday, the deadline is automatically extended to the next business day that’s not a holiday.
Disaster Area Extensions
The IRS may extend tax deadlines for taxpayers in areas declared federal disaster zones. For up-to-date information on disaster relief and filing extensions, visit the following websites:
Remember, staying informed and filing your taxes on time can help you avoid penalties and interest charges. This article is intended for general informational purposes only and should not be construed as specific tax advice. Please consult with a qualified tax professional for personalized guidance on your unique tax situation.
