What Are the Benefits If I Pay My Taxes Early?
While most people associate the tax deadline with paying taxes, U.S. taxes are set up so taxpayers pay tax throughout the year. They do this through withholding or estimated taxes. However, if you’ve underpaid taxes and are subject to an underpayment penalty, it can help to pay your taxes early — that is, before the tax deadline.
An underpayment penalty can occur if you haven’t paid enough taxes throughout the year. How do you know what’s enough? According to the IRS, most taxpayers can generally avoid an underpayment penalty if they either:
- Owe less than $1,000 in tax after subtracting their withholding and refundable credits
- Paid taxes through withholding or estimated payments that are at least 90% of the tax for the current year or 100% of the tax amount for the prior year – whichever is smaller.
So, how is it to your advantage to pay your taxes early? Any penalty due is based on the amount of your underpayment, assuming a payment date of April 18, 2022. If you pay the balance due plus penalty earlier than April 18, you reduce your penalty.
Paying Taxes Early When You Have No Underpayment Penalty
If you’re not subject to an underpayment penalty — meaning the two situations above apply to your situation — you can also pay your taxes early. However, there’s no additional benefit to paying your taxes early.
You can file and pay your taxes as soon as the IRS begins accepting tax returns for that year, typically in late January. Be sure you’ve received all of your tax documents, such as your Form W-2, Forms 1099, or other tax forms, before you complete your taxes. A late form could mean that you would need to file an amendment.
What triggers the IRS to audit a tax return? Learn how common tax mistakes and errors can be a red flag and affect your chances of being audited by the IRS.
Find the current percentages for federal income tax rates, capital gains tax rates, Social Security tax rates and more from the tax experts at H&R Block.
The key to understanding your w-2 form is decoding the boxes and numbers. Learn how to read your w-2 form with this box-by-box infographic from H&R Block.
The tax experts at H&R Block outline how students and parents can file Form 8863 and document qualified expenses. Read about Form 8863 here.