Like everyone else, farmers and fishermen must pay federal income taxes throughout the year as they earn income. If those taxes aren't paid through withholding from wages or other sources, quarterly estimated tax payments are typically required. If Uncle Sam doesn't get paid on time, you could be looking at a stiff IRS penalty. However, if at least two-thirds of your gross income is from farming or fishing, there are a couple of loopholes that let you adjust the normal timetable for making estimated tax payments or avoid them altogether.
First, qualifying farmers and fishermen can pay all the estimated tax they owe with just one payment if the payment is made by the due date for the last quarterly payment of the year. For the 2021 tax year, the last payment was due January 18, 2022 (it's due January 17, 2023, for the 2022 tax year).
Second, qualifying farmers and fishermen don't need to make any estimated tax payments at all if they file their personal income tax return for the year by March 1 of the following year and pay any tax owed at that time. (Note: If it falls on a Saturday, Sunday or legal holiday, the March 1 due date shifts to the next business day.)
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March 1 Estimated Tax Deadline Pushed Back for 2021 Tax Returns
According to the IRS, taxpayers are having a difficult time electronically filing Form 7203 (opens in new tab), S Corporation Shareholder Stock and Debt Basis Limitations. Because of this problem, some farmers and fishermen may not have been able to e-filing their 2021 tax returns by the March 1, 2022, due date. As a result, the IRS is pushing the March 1 deadline to April 18, 2022 (April 19 for farmers and fishermen living in Maine or Massachusetts).
The extension will automatically apply to any qualified farmer or fisherman who doesn't report an underpayment penalty on their 2021 tax return. For those who already filed their tax return and included the penalty, the penalty can be abated by filing Form 843 (opens in new tab), Claim for Refund and Request for Abatement. When filing Form 843, make sure you:
- Write “Request for Relief under Notice 2022-13” at the top of the form;
- Enter “6654” on Line 4;
- Check the third box on Line 5a;
- Include the dates of any tax or penalty payment on Line 5b; and
- Note that you're a qualifying farmer or fisherman who is filing a 2021 tax return and paying any tax due on the return in full by April 18, 2022 (or by April 19 if you live in Maine or Massachusetts), on Line 7.
Other Special Estimated Tax Penalty Rules for Farmers and Fishermen
There are a couple of other special rules for farmers and fishermen that can help them avoid the estimated tax underpayment penalty – although there's no relief this year from the IRS that affects them.
The penalty for not paying enough tax during the year through withholding or estimated payments doesn't apply if you owe less than $1,000 in tax. The penalty is also avoided if your withholding or estimated tax payments equal at least 90% of your tax liability for the year, or 100% of the tax shown on your previous year's return (110% if your adjusted gross income for the previous year was more than $150,000).
For qualifying farmers and fishermen, the penalty is avoided if their withholding or estimated tax payments equal just 66.667% of their tax liability for the year (as opposed to the normal 90% requirement), or 100% of the tax shown on their previous year's return. Also, the higher percentage (110%) requirement for higher-income taxpayers doesn't apply for qualifying farmers and fishermen.
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