I am going to recieve a very large bonus at the end of this Year. Should I start paying estimated taxes now?

Question

If I need to pay estimated taxes how do I go about it?

Answer 1

I am sure your employer will deduct the necessary tax before paying you the balance. why pax tax on something you have not received or something you are not sure of yet, like the amount of the said bonus.

Answer 2

No, you don't.

First, if you are paid with a W2, then taxes will be withheld from your bonus anyway, and you don't have to worry about estimated payments.

If you aren't paid with a W2, and instead get a 1099, then you will have to pay estimated taxes at the end of the quarter in which you receive the money.

The reason for paying estimated taxes at all is because the IRS will hit you with a penalty if you end up owing too much when you file your taxes on April 15.
On the form used to calculate the penalty, each quarter's income is listed separately, rather than putting the whole year together in one space.

BUT, if you are cashing in a lot of options, or getting a lot of money from some source other than work, then you need to be careful about the Alternative Minimum Tax (AMT). It was designed in the 1960s to make sure that rich people didn't deduct away all of their income. But the AMT was never adjusted for inflation. What was considered a rich man's income in the 1960's is now middle class.

Answer 3

Why? You don't have the money now. So you will be taking money out of your current income to pay what you expect to get but don't have yet. The amount of the bonus could change between now and then.

Wait until the end of the year. Receive the bonus. Many companies take out the taxes the bonus generates at that time. If your company does not then take the amount that would cover the tax on the bonus and apply to your tax liability when you file your tax return for 2007.

Answer 4

There is no need to start paying now. Wait until you get the bonus and have the money available. The estimated taxes are not due until after you get the money. If this is a bonus from your employer, they may deduct taxes from it and you will not have to make a estimated payment.

The site below gives you the 4 dates that estimated payments are due and the conditions triggering them.

Answer 5

I would only pay the estimated taxes if you have not filed your 2006 taxes yet ( there are detailed instructions in the tax booklet). If you submitted your taxes for last year already, just put some money in savings each month to cover the bonus tax. We did the latter and collected interest because it was in our bank account.

Answer 6

Won't your employer take taxes out of the bonus? Usually they do, in which case you shouldn't have to worry about paying estimated taxes. You don't actually OWE estimated taxes until the quarter in which you get the extra income. Go to irs.gov and look at the section on estimated taxes. You can get the necessary forms on-line.

http://www.irs.gov/businesses/small/article/0,,id=110413,00.html

Answer 7

The IRS has required employers to withhold from bonuses 20% regardless of what exemptions are claimed if you are an employee. If you are self employed or receive a 1099, then it is treated just like your other 1099 income. No estimated tax payments need to be made until you receive the money.

Answer 8

You should have paid estimated tax payments quarterly, starting 4/15/09, for your business. Three of the four due dates for 2009 taxes have passed. The last is 1/15/10.

Answer 9

Usually employers take the taxes out of bonuses. If you are self emplyed, or they are not taking them out, either get an accountant or call the IRS directly. They should help you determine how much you should pay. (You will need an idea of how big the bonus is going to be.)

Answer 10

I wouldn't unless the amount of the bonus is guarenteed. Why pay taxes on income you have need received yet?