When you visit your local fruit monger to get your weekly haul it’s a wonderful experience. The smell of earth and goodness fills your nose. All of the different colors stimulate your senses and you feel the fruits to check their ripeness. And if you ask, the fruit seller will give you a little taste of the newest items. On the way home, you feel really good inside about eating well and staying healthy.
Mangoes and Taxes
There are many types of fruit, and some are available year round while others are not. For example, apples are available all year round and they cost less than a seasonal fruit, like mangoes. You appreciate mangoes because of their scarcity and great taste.
Let’s go one step further and say that your local fruit vendor bills you once a year for all of the items you purchase. He knows that you are a successful techie and that, “you’re good for it.” Plus, he bills you on Venmo. How convenient?
When you make a one-time payment for your annual mango consumption you can’t believe how high the bill is! “I ate that many mangoes!”
The bill is steep, and you realize it’s better to settle up with the fruit monger several times a year.
One, you won’t be surprised with your bill. Two, you actually have that much cash available.
How Do You Avoid a Large One-Time Payment?
Just like paying for mangoes, it’s best to make estimated quarterly tax payments for RSUs throughout the year. Projected tax payments for the fourth quarter of 2023 are due on January 15th. For those of you with RSUs, you may be familiar with this activity of quarterly tax payments.
If you are not, then you may have a surprising and large one-time payment on April 15th.
Keep in mind that tax payments are not just for January 15th of next year. Navigating underwithholding for all of 2024 is important for you.
To avoid a large tax payment on April 15th, you make estimated quarterly tax payments throughout the year. These four dates are:
- April 15th
- June 15th
- September 15th
- January 15th
If you have not begun your estimated quarterly tax payments there’s no better time than now.
Why Are Estimated Quarterly Tax Payments Required?
This is the confusing part. You have wage income reported as salary and RSUs but there are different taxes on different types of income.
Your salary is taxed at the rate according to your W-4 tax form. Supplemental income, like RSUs, is usually taxed at a lower withholding rate than your W-4. When you have RSU income, chances are that you will have to pay more in taxes due to underwithholding.
The Benefits of Having the Cash to Make Estimated Quarterly Tax Payments
When you are aware of a tax bill that you must pay four times a year, it’s best to have a strategy to settle up.
The best way to do this is to use open trading windows in your company stock. Develop a strategy to sell off company shares throughout the year to raise money to pay withholding taxes associated with your RSUs.
If you are not paying your quarterly taxes, the IRS may issue a penalty. Tax penalties are now a lot higher – 8%, up from 3% two years ago.
What do your 2024 estimated quarterly tax payments look like?