Advance US income tax: How to make sure you pay your tax liability on time

Do you have to report it to the U.S. Tax Authority? Did you think the tax liability payment would be made in the following year and only after the tax report was filed?  Well, think again. The obligation to pay advances to the U.S. Internal Revenue Administration sets very different payment dates. Keep reading the following article to know more about the advance US income tax.

The U.S. Tax Authority imposes significant tax burdens on American citizens (and not only) –in terms of the scope of reporting to the tax authorities, in terms of tax rates and finally in terms of tax payment dates. Moreover, the provisions of the law relating to these obligations are multiple and complicated.

However, knowing the tax burdens and planning tax early can help cope and make the whole thing a simple matter. In the article here we will distinguish between reporting obligations and payment obligations, we will list the payment dates and the meaning of the tax advances, explain how the payment is made, and finally we will list the sanctions that will apply if the payment is not made at the club. Want to avoid a situation where a bureaucratic misunderstanding will result in you not being in debt to the U.S. Tax Authority? Keep reading.


A duty to report or a duty to pay?

First, we must emphasize an important point: the duty of reporting and the obligation to pay the tax are two separate and independent obligations. And so not everyone who is required to report tax is liable to pay tax.

It is possible that a taxpayer will file a tax report, but after examining the deductions and credits due to him, the tax obligation will be $0, so that the taxpayer will not be liable to pay tax.

The applicability of the reporting obligation is quite broad: Any American citizen, permanent resident or foreign citizen with income originating in the United States must report if their income exceeds the income threshold set out in the law.

Income thresholds are fixed in law and vary according to the status of the taxpayer (single/married who report separately/ married who report together / Head of household / widower). For each of the statuses, a different income threshold is set that requires reporting. A taxpayer who has exceeded the income threshold will be required to report his income.

After examining the submitted report, the tax payment liability of the taxpayer will be determined. As part of the tax report, the taxpayer reports all his global income, but also reports deductions due to him and tax credits to which he is entitled.

In general, it can be said that the tax obligation is calculated while reducing the deductions and credits to which the taxpayer is entitled to income for tax purposes.  The result of the calculation determines the tax payment obligation of the taxpayer. As mentioned above, the result of the calculation can be zero. At the time, even though the taxpayer was obligated to report tax, in practice he did not have a tax obligation.


When is the tax payment made?

As we explained, American citizens, permanent residents, and local corporations all must report tax on their worldwide income for that tax year. Foreign companies also owe tax reporting to U.S. authorities for income originating in the United States. After submitting the tax reports on time, the amount of the tax payment for the same income is determined.

However, the U.S. Tax Authority does not wait until the end of the tax year and receives the annual report in order to receive the tax payment. The U.S. Tax Authority, the IRS, seeks to secure the payment earlier and charges the taxpayers tax (for employees) or paying tax advances as early as the year.


How are advance payments done?

For employees, the tax deduction will be done, as stated, originally by the employer. However, for self-employed people and other income, the tax payment will be made through quarterly advances.

The calculation of the advances will be made on the basis of the taxpayer’s estimates regarding annual revenues and results in previous quarters. Taxpayers who did not have tax liabilities in the previous year or are citizens less than a full tax year will not be liable to pay advances.


Advance US income tax – what happens if you don’t pay

Failure to meet the down payment may impose on the taxpayer interest rates and hefty fines. Failure to pay these advances will result in a fine starting at $1,000. Failure to pay the tax liability as a whole will also result in fines of 0.5% of the tax liability. Of course, as long as the tax payment is delayed, the tax liability accumulates interest calculated daily based on the annual interest rate of about 6%.

Didn’t you pay advances? Don’t you know how to do this? Need any other counseling? The professional and skilled team of MesAmerica is at your service.

The aforesaid should not be regarded as legal advice. It is advisable to consult with the MasAmarika team before any action. The service is provided by a professional team, fluent in English and Hebrew, and includes attorneys and accountants with American licenses.

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