When Do You Pay Taxes? The Ultimate Guide [2024]

When do you pay taxes

Whether you like taxes or not, they are the reason the government has the funding to build a stable society. However, there are numerous questions related to them that many business owners and employees need answers to.

So, why and when do you pay taxes, what’s the easiest way to do it, and what types of taxes are there?

If you want to learn more about this, look no further! In this article, we explain all that in detail to help you cope with paperwork much more easily. So, without further ado, let’s get to the point!

Why Do We Have to Pay Taxes?

Forms and a cellphone

If you’re a U.S. citizen, you pay taxes to fund your local, regional, and national governments. In fact, the total U.S. federal spending for fiscal 2022 was $9.0 trillion, which mostly came from taxes.

This money goes towards financing government activities like public works, roads, schools, and programs like Medicare and Social Security. Thus, by collecting taxes, the government can improve economic growth, health care, and education, building an orderly and functioning society.

Many countries worldwide, including the U.S., require taxpayers to pay taxes at rates levied by the government. Tax evasion, or the deliberate failure to fulfill tax duties, is punishable by law. Still, there are actions you can take to lessen your tax liability and maximize your post-tax income.

Taxes in the U.S. are usually paid by people who earn money from salaries, capital gains, dividends, etc.

Common Types of Taxes

The table below shows some of the most common types of taxes citizens are required to pay:

Tax Type

Explanation

Payroll tax

This tax is withheld from an employee’s salary by the employer, who then pays it to the IRS on the employee’s behalf.

Income tax

This is a percentage of the income generated by a business owner that goes to the federal or state government.

Corporate tax

Corporate tax is the tax used to fund federal programs and is a percentage of corporate profits.

Contractor tax

This tax is paid by writers, doctors, graphic designers, and other independent contractors.

Property tax

Property tax is calculated based on the value of land and property you own.

Sales tax

This type of tax is levied on goods and services sold by various business owners.

Tariff

A tariff is a tax on shipped goods, which strengthens domestic businesses.

When Do You Pay Taxes?

When do you pay taxes

In the U.S., the deadline for paying federal tax returns is April 15, but that date can vary. In cases where the 15th falls on the weekend or is a legal holiday, the deadline is shifted to later. For example, the deadline for paying personal income taxes in 2024 is April 15.

Keep in mind that the IRS starts accepting tax returns in January. So, if you are owed a refund, be sure to file your taxes early and get the money as soon as possible.

How to Pay Taxes

One good thing about taxes is that they’re super convenient to pay nowadays. You have multiple options to pay taxes, and we’ll go over them in the section below!

#1. Electronic Federal Tax Payment System (EFTPS)

The Electronic Federal Tax Payment System (EFTPS) is a free tax payment service provided by the U.S. Department of Treasury. It allows you to schedule payments in advance and pay your taxes online.

To use EFTPS, all you have to do is:

  • Visit the official EFTPS site and enter the following information:
  1. Employer identification number (EIN)
  2. Taxpayer identification number (TIN)
  3. Business name and address
  4. Your contact information (e.g., phone number, email)
  5. Bank account and routing number
  • Wait 7-10 days for approval and a PIN, which you’ll receive via mail
  • Use the PIN you receive to create an account
  • Choose a login name and password

#2. Direct Pay

If you’re in a rush, you can also pay your taxes directly to the IRS. To use the direct pay method, you’ll have to enter your bank account and personal information on the IRS’ official website.

#3. Credit Cards and Digital Wallets

Paying taxes with debit cards, credit cards, and digital wallets such as PayPal is only possible if you use an approved payment processor. Luckily, there are three of them, so you have multiple choices.

#4. Checks

You can also send a check via mail to the IRS and pay your tax that way. But remember that it will take time for the IRS to process your payment, so opt for this method only if you aren’t short on time.

#5. Payment Plan

A mother examining payment plans

If you don’t have the financial means to pay the taxes you owe right away, you can use some of the payment plans the IRS is offering. For example, you can choose to pay in monthly installments and pay what you owe over time.

You can even decide how much you want to pay monthly, but keep in mind that you have a limit of 72 months to clear your debt. So, to calculate your minimum payment, simply divide what you owe by 72.

Late Payments Penalties

Late Payments Penalties

When paying taxes, it’s super important that you don’t leave it to the last minute, as you will face a penalty if you owe money for too long. The basic tax penalty is 0.5% for each month of late payments, and it can go up to 25% of the due amount.

To make matters worse, you will also have to pay interest on top of the penalty. The interest rate is based on the federal short-term rate plus 3% of the total monthly rate.

There’s also a filing penalty that’s 5% of your unpaid monthly taxes, which can also go up to 25% of your unpaid taxes. In case you’re 60 days late with filing, you will have to pay a minimum of $435.

Important Forms for Filing Taxes

Now that we’ve covered every important piece of information regarding taxes, let’s talk about the forms that are generally considered necessary for filing taxes.

#1. W-2 Form

A W-2 form is a legal document that you, as a business owner, use to report the wages you pay to your employees and the taxes withheld from them. Typically, the information that goes on the Form W-2 includes:

  • Income your employees have earned from you
  • Taxes withheld from each paycheck
  • Benefits provided
  • Your company information
  • Employees’ information

#2. W-9 Form

W-9 forms are used by independent contractors who offer various services to their clients. A single form is made of 8 sections and contains personal identifiable information of a business owner and a description of their company.

The IRS has an excellent guide which you can use when you’re filing the W-9 form.

#3. 1099-MISC Form

The IRS requires you to file the 1099-MISC form every year by the end of February or March if you’re filing electronically instead of on paper. The form is used to note down how much income you’ve earned during the year and what type of income it was.

#4. Invoices

Although you don’t need to file invoices with the IRS, they are important when you’re filing taxes, as you’ll need to go back and see how much you’ve earned from each client. This is especially true if you need to pay sales tax.

Key Takeaways

  • You pay taxes to fund the government, and the money goes towards financing public works, schools, the police, etc.
  • The most common types of taxes are payroll tax, income tax, corporate tax, sales tax, and property tax.
  • You can pay taxes electronically, directly, with credit cards and checks, and you can also opt for a payment plan.
  • The deadline for paying taxes is usually April 15, but you can shift it to later.
  • If you don’t pay taxes, you’ll face late payment penalties and have to pay interest rates.

Final Thoughts

At the end of the day, you can’t avoid paying taxes, whether you like them or not. What matters is learning how to do it properly and avoid issues with the IRS. Hopefully, this article has helped you get a better grasp of the process and enabled you to pay off your debt on time!

Related Articles

How To File Taxes With No Income & Why You Should Do It

Married Filing Jointly Vs Separately: Which Is Right For You?

What is A Tax Code? U.S Tax Code System Explained

LEAVE A REPLY

Your email address will not be published.

* Required filled