President Donald Trump isn’t the only one who’s “prepaid” his taxes. Millions of other Americans have, as well.
At least that’s the case if he meant paying quarterly estimated taxes, according tax experts.
Talk of the president’s income tax returns â and the $ 750 he reportedly paid in 2016 and 2017, per The New York Times â made its way onto the stage Thursday night during his final debate against Democratic candidate Joe Biden.
“I asked them a week ago,” Trump said, referring to his accountants. “I said, ‘What did I pay?’ They said, ‘Sir, you prepaid tens of millions of dollars.’ I prepaid my tax.”
“Tens of millions of dollars I prepaid because at some point they think it’s an estimate,” he said. “They think I may have to pay tax.”
Without a copy of Trump’s tax returns, it’s hard to say definitively what he’s referring to, tax experts said.
However, tax professionals say the president may mean making quarterly estimated tax payments â which would put him among millions of other taxpayers, including independent contractors, small businesses and gig workers earning side income.
Over 9.6 million individual taxpayers made estimated tax payments totaling nearly $ 404 billion during tax year 2018, according to the IRS.
“To make this more about us as humans who make reasonable amounts of money without being too extravagant, it’s the equivalent of making estimated tax payments,” said Adam Markowitz, enrolled agent and vice president at Howard L Markowitz PA CPA in Leesburg, Florida.
During the debate, the president also characterized the infamous $ 750 payment he made to the IRS as a “filing fee.”
The IRS doesn’t assess a fee for merely filing your taxes on time. “There is no such thing as a filing fee,” said Markowitz.
Quarterly estimated taxes
Employees pay income and payroll taxes on a rolling basis by withholding those amounts from their paycheck. They receive a Form W-2 every January showing their wages and taxes withheld.
It’s different for independent contractors and small businesses. These taxpayers pay an estimated tax every quarter, on Jan. 15, April 15, June 15 and Sept. 15.
Those payments cover income taxes, as well as the 15.3% self-employment tax that funds Social Security and Medicare.
Failure to cover the taxes in a timely fashion results in penalties.
Generally, you have to pay at least 90% of the tax for the current year or 100% of the tax owed from the prior year (110% of last year’s tax if your adjusted gross income exceeds $ 150,000).
It’s also easy for quarterly taxpayers to overpay their estimates, perhaps even by millions of dollars.
“If you were trying to have a plausible way to say you paid a lot of money in tax payments, you could write estimated tax payments for the sake of it and then claim a refund when you file,” said certified financial planner Jeffrey Levine, CPA and director of advanced planning at Buckingham Wealth Partners in Long Island, New York.
Focusing on the numbers
There’s more to a taxpayer’s story than just the amount he winds up owing the IRS when filing a tax return.
“At the end of the day, a tax return is a truing up of what you paid during the year and what you were supposed to pay,” said Levine.
To get a sense of someone’s tax liability for the whole year, don’t look at the amount they paid the IRS on Tax Day. That only shows the amount they paid to “true up” their total payments.
Similarly, a refund is only reflective of the amount you overpaid. Uncle Sam is giving you back the difference between your payments and your actual liability.
Instead, look at the “total tax” for that year â or line 16 on the Form 1040 for 2019 â said Levine.
“Some people pay too little during the year and many overpay during the year,” he said.