If you've received a higher than anticipated estimate for Q4, there are a few common reasons why. While this article may not be able to address your personal situation, we hope that the following can shed some light on some possible explanations and help you prepare for future quarters.
If you didn't pay or have underpaid quarterly taxes this year
If you didn't pay or you underpaid tax estimates for certain quarters this year, there are a few things you should know and be prepared for. Based on how much you have paid in prior quarters, the estimate we calculate for you for Q4 will "true you up", or get you squared away for the entire year. That's why it may be higher than your previous estimates.
However, keep in mind that even if you do "true up" in Q4, you may still be subject to underpayment penalty fees that you'd be responsible for paying if you didn't pay or you underpaid in previous quarters of that tax year.
If you’ve had fluctuations in your overall net income in the last quarter
These increases include:
- Increases to 1099 income
- Increases in your overall private practice income
- Increases to W2 income
- If you have not withheld taxes from your Payroll wages, or if they are minimal, this inflates your overall taxable income
- If you’re married and filing jointly, the above will also apply to you and your spouse
f you’ve made retirement contributions or qualify for other deductions
These contributions and/or deductions will be factored in during the annual tax filing experience as this is an estimate of how much you’ll owe.
One last thing to keep in mind
Sometimes, you may receive a higher estimate in error if you haven’t entered all of your quarterly tax information correctly. One of the most common mistakes is when therapists who have earned W-2 income don’t enter their withholdings from their most recent pay stub. Leaving out W-2 withholdings will impact one’s estimate.