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How pandemic provisions have impacted estimated tax payments

Third quarter estimated tax payments are due on Sept. 15, and whether you’re self-employed or a business owner with income from a Partnership or S-Corporation, you might be wondering if any of the pandemic relief programs will impact what you owe.  

As you probably know, estimated taxes are a way to pay tax on income that isn’t subject to withholding. Income from self-employment, interest, dividends, alimony, rent, and gains from the sales of assets, prizes, or awards, all could require you to pay estimated tax.  

And it’s not only used for regular income tax, but also for other taxes like self-employment tax and alternative minimum tax. Remember that estimated tax payments are paid in four installments and are due April 15, June 15, Sept. 15, and Jan. 15. However, if you’ve been impacted by Hurricanes Henri or Ida, the severe storms and flooding in Tennessee, or another presidentially declared disaster, an extension on third quarter estimates for 2021 has been granted until Jan. 3, 2022. 

With the Sept. 15th deadline right around the corner, it’s important to make sure you’ve got everything in line for your next payment. However, estimating income for 2021 can be trickier than previous years because of recent relief programs, like the Paycheck Protection Program or Employee Retention Credit. Whether you’re running a business or managing your personal taxes, here are three things to keep in mind when determining how much you’ve got to pay in estimated tax in the last two quarters of 2021.   

1. Impact of the Employee Retention Credit: Business who received an Employee Retention Credit may have to deal with an unanticipated tax situation because the amount of the credit received reduces the wage expense deduction for that tax year. That, in turn, increases income which might mean you owe more in taxes. 
2. Impact of Advance Child Tax Credit Payments: If you received advance Child Tax Credit payments for the last half of the year, you could owe back some or all of it on your 2021 tax return. Why? The 2021 payments are essentially estimates based on your 2019 and 2020 returns, so unexpected changes to your 2021 return (an increase in income, or a child no longer qualifying as a dependent, for example) may put you out of the running for the credit. 
3. Impact of 2021 PPP loan forgiveness on state and local taxes: If you had your Paycheck Protection Program loan forgiven, those funds aren’t taxed by the federal government. However, different states have different rules, as some are treating the forgiven loan as taxable income and denying the deduction for expenses paid for using forgiven loans. So, state-level estimated tax payments might be in order. 

Given all the changes thrown at you the past few months, it’s important to have a trusted accounting and tax partner to guide you through the obstacles and hurdles of compliance. At PADGETT BUSINESS SERVICES®, our network of CPAs, enrolled agents and tax professionals is well-versed in dealing with these programs and policies. Find an office near you today!