I need help understanding what "Tax payment progress" means. What do these numbers mean?
At Formations, we want you to be prepared for your tax liability, so you have the information you need to make good financial decisions. The "Tax payment Progress" section of your dashboard is how we show you your estimated annual federal and state income tax liability and if you are on track with recorded payments through payroll withholding and direct payments.
It's important to note the following about our tax estimates:
- This section attempts to show your expected tax as a household. This is based on your business income as well as other income your household receives.
- We rely on you to self-report figures for your household throughout the year via check-in surveys in order to provide more accurate tax estimates. If your household has had any major financial changes in the year, please notify us and request an updated estimate based on the info you provide.
- The accuracy of the estimate depends on how much prior year info we have about you. If we aren't currently doing your personal tax return (1040), adding that to your plan will help improve the accuracy of your estimates. To learn more about including your 1040 in your subscription, click here: Upgrade to include your 1040
- If we have your 1040 from the previous year, the tax estimate will assume some information, such as itemized or standard deduction, has not changed.
- Accurate year-to-date financials also improve the accuracy of the estimate. Make sure you have no unknown transactions, and your income and expenses look accurate. If you think something is off, please reach out as soon as you can.
How to read the tax payment progress:
On your Dashboard, scroll down the page, and you should see a section labeled “Tax payment progress”:
The first number bar is estimated federal income tax. When you hover over it, it will show you the breakdown of payments and remaining amount.
The second bar (if you have one) is for estimated state income tax.
These amounts are calculations based on the info mentioned in the first part of this article.
When hovered over with your cursor, the blue bar represents how much you’ve paid in federal and state income taxes through payroll. Based on your estimated tax liability, salary, and payroll plan, you have an amount set up to be withheld from each net paycheck and paid to the IRS for your household’s federal income taxes.
If you made any payments directly to the IRS or state tax agency, and reported those payments to us, those will be shown by the green bar. If you don't see payments that you've made, check your Taxes -> Tax Payments section in the left-hand menu to make sure they are reported and approved there, or click the the "+Add New Direct Payment" in the top right of the box.
The grey area (orange bar when hovered over) represents your outstanding federal tax balance. Some taxpayers prefer to pay their tax liability as late as possible, but others prefer to remain "on track". If you want to be on track, you should aim to steadily reduce the outstanding amount before the end of the year. Knowing your estimated “Outstanding Federal Tax Balance” is a great way to understand if you’re on track to cover your full tax bill, or if you need to plan on making a payment to the IRS or state.
Don't hesitate to get in touch with your Formations team if you have any questions about your estimates, withholding, or payments. For more info about how to reach out, click the yellow star in the top right corner.