Tax Installments

[emmsmama]

Anybody here have to pay tax installments? I made just over $30,000 before deductions last year and I have just over $5000 owing this year btwn. taxes and CPP. My accountant said that the government will now make me pay in installments for next year and I'm just trying to find out info. on how that works. He said and websites say that the government will send me notices twice a year, but one of those supposedly comes in Feb. for a payment due Mar. 15th, but it's already past both those dates :blink: I'm stressing out now because I don't want to be charged late fees on something I didn't even know I had to pay. Or am understanding this wrong? I've made over 30K once or twice in the past 10 years and never had to pay in installments the following year so I'm wondering if this is some new thing.

[5 Little Monkeys]

In past years I've always been able to use my savings to pay it in full but I have heard instalments is an easy process. On the back of my "bill" I got from CRA, there was a number to call to make arrangements. I'd start there and make a phone call.

[kindertime]

I have been down this road...you have to pay tax in installments if the tax you will owe is $1,800 or more. The amount of CPP is included in the installment payment but is not part of the factoring into whether or not you have to pay instalments.

The thinking is that people will make a little bit more money each year. With inflation and raises. This is not always true, especially for our job, but that doesn't matter.

Here is how it works. The CRA will estimate what your tax bill will be for 2015 and send you a notice in the summer, probably July 2015. They will divide that estimate (say $5,000) by 2 payments. Sept 15th and Dec. 15th. So $2,500 each.

Then, they will estimate what your whole tax bill will be for 2016 (say $5,500) and send you a notice in Jan. 2016. They will take that estimate and divide it in four instalments. (Mar. 15, June 15, Sept. 15 and Dec. 15) each for $1,375.

Things to know, even if they don't send you a notice, you are responsible for paying instalments if the tax part or the tax bill is more than $1,800 for a year. It is your responsibility to know.

Also, if you KNOW your tax owing will be less than $1,800 for 2015, you don't have to pay instalments. If you end up owing only $1,799, then there will be no penalty come tax time. However, if it's going to be close, and you can't figure out in advance how much you will owe, you are taking a chance.

Penalties are charged on each instalment that is late or doesn't cover the amount owing.

Money you send to CRA in 2016 cannot be used as an instalment for 2015. (Found that out the hard way.)

You can pay more often than just 4x per year if you want. Online banking makes this easier.

Oh, and btw, I don't know your accountant, but s/he should know all of this info and should have explained it to you.

Good luck!

[Daisy123]

I don't know about estimating ahead- I've never had this done here in Ontario. I simply do my taxes for the year and send it off. When I get the notice of what I owe I call the number on the back of the form like 5 Little Monkeys said. They've always been really helpful. You just ask to make payment arrangements and they even ask me how many months I'd like to pay the amount owing over. With interest of course!

[kindertime]

I think there is a distinction to to made here. If you owe money on your 2014 taxes, it is due by April 30th, 2015. If you make several payments over the next few months to pay that off, those are late payments and, yes, you will have to pay some interest on it.

That is not what they mean when they talk about installments. If you had a job and had payroll tax taken off on each pay cheque, that is like an installment. You are paying the tax at the time you earn the money. Not the next year.

But we don't have payroll tax taken off, we are self employed so we have to pay the 2014 taxes in 2015. Unless... you pay the tax in 2015 on the money you earn in 2015.

So, to the OP, if you owe $5,000 for 2014, you must pay it before April 30, 2015 or else you will have to pay interest. That is separate from paying 2015 tax in installments. The CRA assumes if you owed that much this year, you will owe that much or more next year.

[jodaycare]

I have a question for the original poster. If you only made $30,000 before expenses, how to do owe $5000? I make at least $40,000 per year before expenses and I have never paid $5000 except for the year we cashed in a bunch of RRSPs. My income after expenses is usually between $22,000 and $25,000, so I usually pay about $1500 and that includes CPP

[mickyc]

Yes also curious why you owe so much tax? Sounds high based on your numbers.

Like everyone else I owe every year. I don't stress about it. I make monthly payments to CRA. Ya I pay interest but so what, it isn't much.

[kindertime]

:confused: I am so, sorry!! :(

I was using the Que amount when I said you had to pay installments if your taxes owing was $1,800. The CRA's number is $3,000. I honestly thought they were the same amount.

All the info is here;

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/wh-eng.html

[Busy ECE mommy]

I didn't have to pay installments, and I owed $4300 on about $35, 000 gross last year(and I had tons of expenses) I think you need to consider total household income as well, and all of your personal family claims outside of business. Everyone has a unique set of circumstances.

[Wonderwiper]

Busy ECE....according to CRA you technically should be paying you tax in instalments:

You have to pay your income tax by instalments for 2015 if your net tax owing is more than $3,000 (unless you live in Quebec):

in 2015; and
in either 2014 or 2013.
You do not have to pay your income tax by instalments for 2015 if your net tax owing for 2015 will be $3,000 or less ($1,800 or less for residents of Quebec), even if you received an instalment reminder in 2015.

If you received an instalment reminder that shows an amount to pay, you may have to pay your income tax by instalments.

COPIED FROM CRA WEBSITE

[kindertime]

I didn't have to pay installments, and I owed $4300 on about $35, 000 gross last year(and I had tons of expenses) I think you need to consider total household income as well, and all of your personal family claims outside of business. Everyone has a unique set of circumstances.

I know my credibility is shot here, but I have to...
I would assume for you, the $35,000 gross is before you deducted expenses. That changes things a lot. Your taxable income comes after you deduct business expenses. And, the $4,300 is your total tax bill. That would likely be mostly CPP, which doesn't figure into whether you have to pay installments. (It could be something like $1300 tax and $3000 CPP)

I just spent more than an hour on the phone this morning with a friend who also does daycare. Last year, she stopped having an assistant "on the books" and her tax bill has more than doubled. She can no longer claim the expenses related to paying this person so she is on the hook for over $6000. (In Que. you can have 9 kids that are 5 and under if you have an assistant)

[5 Little Monkeys]

I am wondering what the reason is for paying in installments if over $3000 (was that the number?) If you had the full amount you owed ready to go, why can't you just pay it off in one shot? The highest I have had to pay is $2400 (some of that was CPP and EI) and I just paid it off as I don't like to pay interest if I can help it. I'm not sure if I would be able to pay $3000+ off in one shot but if I could, I would want too. Do I not have that option at all?

I'm still on a high from not having to pay taxes this year :) I only had to pay my CPP and EI...hoping next year it is the same!!

[kindertime]

I am wondering what the reason is for paying in installments if over $3000 (was that the number?) If you had the full amount you owed ready to go, why can't you just pay it off in one shot?

Again, some clarification. If you owe, say...$3000 for your 2014 taxes, the whole thing is due by April 30th. No installments. It's just due. The gov't is like us...they want to get paid on time. If you don't pay this amount by April 30th, you have late fees.

The installments come next time. If I owed $3000 in tax (not including CPP) for 2014, (due Apr. 30th, 2015) the CRA will assume that this year (2015) I will owe about the same on my taxes due Apr. 30, 2016. So, because they know it can be hard to come up with a lump sum in April, they ask for it in advance in installments.

Think of it this way, when an employee gets paid, there are payroll deductions made. One of those is for taxes. That is, in essence, an installment made every two weeks. When they do their taxes in April of the following year, they will put down that they have already paid $XX of tax. If the boss took off too much tax throughout the year, then they get a refund. If the boss didn't take off enough, they have a balance due.

I send Revenue Que. $200 every two weeks when I get paid. These are my installments. I don't have to make them every two weeks, only 4x per year, but it is easier this way. I do it all through online banking and it is just the same as if I had a payroll tax taken off by my 'boss.' Except I am my boss.

[emmsmama]

Thanks for all the replies. Just to clarify, I know I have to pay the 5K due now before the end of this month. Actually, I think I have until the middle of June to pay it because I'm self-employed, but either way, I know I have to pay that very soon and am prepared to do so. To the poster who asked how I owe so much, I don't know, part of it was reg. taxes and part was CPP (over 2K was CPP). In previous years I've made less and owed very little, sometimes only CPP, but this year I made about 32K and it came out to about 27K after deductions, so I figured I'd have a good amount to pay.

I was wondering how installments work is all. I'd rather just pay one lump sum at tax time so I can keep my money in my own account until then, but I also didn't want to get hit with interest or penalty charges for installments I hadn't even been notified of. If the CRA sends me something with my bill for this year that says to make installments then I'll make them as that is simple enough, but I was just freaked out because I had never, in over 10 years of doing home daycare, had to make installments. Then again, when I looked back to 2005, which is the oldest records I have, I realized I've never made as much as this year or had to pay as much. Not that 30K is tons of money, but it's more than in past years :)

[kindertime]

Thanks for all the replies. Just to clarify, I know I have to pay the 5K due now before the end of this month. Actually, I think I have until the middle of June to pay it because I'm self-employed, but either way, I know I have to pay that very soon and am prepared to do so.

Advice...be sure to check on that. I believe self employed people have until June 15th to FILE their taxes, but the money is still owed on April 30th. Anyway, double check unless you're sure.

[emmsmama]

Thanks, I plan on paying by the end of this month anyway, but it's good to know :)

[5 Little Monkeys]

Advice...be sure to check on that. I believe self employed people have until June 15th to FILE their taxes, but the money is still owed on April 30th. Anyway, double check unless you're sure.

Yes, this is correct.

[Spixie33]

Last year I made nearly 40 K and the accountant said I owed $4400. He said that I would likely be asked to make prepaid installments during the 2014-2015 year but I never got any notice of the sort. I got my usual notice of assessment and was told how much I owe and I paid it off within a month or so and that was it. They did not ask me to make payments towards the 2014 tax year.

So this April I did my taxes for 2014 and again I owe over $4000. I set aside about $100 a week so I am pretty much ready. I think over 2000 was CPP and another 2000 or so was income tax.

Don't panic about the installment part - because it was told to me but never came to happen.

BTW - you can call Revenue Canada and ask to make a monthly payment if you can't afford to pay what you owe all at once. I have done a monthly payment plan with them because I got blindsided by what I owed.

[Busy ECE mommy]

@Spixie33-mine was similar-over $4,000 owing, but 1/2 was CPP and the rest was federal and provincial tax. I'm guessing that's why the installments didn't happen. Perhaps you need $3000 of actual federal/prov. taxes before installments kick in?