Can You Really Prepay Taxes?
In his third presidential debate, Donald Trump has waived his $ 750 tax payments since 2016, saying he paid ” millions and millions of dollars ” in taxes “up front.” What about $ 750? Just a “registration fee”. Aside from fact-checking on this specific requirement, can you actually make a prepayment of federal income tax? Yes you can, but you probably wouldn’t do what Trump suggests.
When you are employed and classified as an employee (rather than an independent contractor), your employer withholds taxes from each paycheck that goes into your personal tax account at the end of the year. How much depends on the choices you make on the W-2.
If you are self-employed or working as an independent 1099 contractor, you do not have an employer to withhold payroll taxes, so you will have to do it yourself through estimated tax payments . As an individual, you must make an estimated one-off payment during the year if you plan to have $ 1,000 or more in tax arrears. Corporations must do the same if they owe more than $ 500.
Estimated taxes are payable on a quarterly basis (i.e. four times a year, but at unequal intervals). If you earn enough in a quarter to owe taxes, you must make an estimated tax payment for that quarter, or you risk a fine. In a sense, this is a prepayment, and in theory you can get ahead of the total bill by paying more. UseIRS Form 1040-ES to calculate estimated payments.
You can also use estimated payments as a W-2 employee if you think you owe a ton when tax season starts. It is difficult, but there are penalties if you underestimate the amount you hold.
The only other “prepayment” you can make is to repay your debt next year. This benefit can be useful if you are self-employed and cannot defer taxes over time.
That way, you can “prepay” your taxes – but you wouldn’t just cut the IRS check by millions without knowing that you owe millions. Not only is this how tax payments work, you’re also lending an interest-free loan to the government that you don’t really owe.