Overpayment of Taxes Applied to Next Year
Wondering what’s the advantage of applying your overpayment of taxes to next year? If you’re receiving a refund for this year’s taxes, you have the option to put this money toward your taxes for the next year.
While you’re not required to apply your overpayment of taxes to next year, doing so allows you to get a head start on next year’s taxes. This may be especially helpful if you’re going to have income that’s not subject to withholding. For example, if you earn income as an independent contractor and your taxes are not withheld through Form W-4 instructions, you may need to make quarterly estimated tax payments.
For some, it may take a little extra effort to set money aside to make those estimated tax payments. If you apply your overpayment of taxes to next year, you’ve helped yourself reduce the amount you need to set aside.
How Much IRS Overpayment Can Be Applied to Next Year?
You can choose to apply all or just some of your IRS overpayment to next year’s taxes. If you use the entire amount of your overpayment, it will apply to your first installment of estimated taxes until all your balance has been used.