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Recurring Prepayments and Prior Payments

This article applies to:Avalara AvaTax Update

Some jurisdictions may require you to pre-pay some tax before you file your returns. Taxes paid this way are treated as a tax credit when you file the return they're associated with (for example, if you need to prepay taxes on your February return, you would pay part of February when you file for January, and claim the amount you prepaid as a credit on the February return). These prepayment requirements usually come into effect after your business has crossed a liability threshold of some kind.

Depending on the jurisdiction, you might be required to include prepayments on the tax return forms you usually file, on a separate form specifically for prepayments, or through an electronic payment directly to the tax authority. Automate any of these prepayment methods, including direct payment, with forms in Returns, or remit prepayments yourself and report them in Returns so that Avalara knows how much you already paid.

Different jurisdictions have different requirements for setting up automated prepayments in Returns. Make sure you're following the steps necessary for the state you're filing in. If you aren't sure what you need to do, contact the relevant tax authority or consult Avalara's Returns Central.

Prepayment requirements How to automate with Returns
File quarterly with monthly prepayments Schedule a monthly prepayment return in addition to the form you've set up for your quarterly filing. The specific form you need to use varies depending on your jurisdiction. All of these forms should be available in Returns, except for the New York PrompTax form, which requires assistance from Avalara to set up.
Annual prepayments Schedule an additional return form for the prepayment. The specific form you need to use varies depending on your jurisdiction. The annual prepay forms for West Virginia and Mississippi require assistance from Avalara Support to set up.
Monthly prepayment and monthly filing Schedule an additional return form for the prepayment. The specific form you need to use varies depending on your jurisdiction.
Combined prepayment and filing Set up the combined prepayment and return filing form, and expire any other return form that you'd set up in this jurisdiction

At this time, Returns doesn't support prepayments for Arkansas, Illinois, Michigan, Missouri, or the Iowa Bi-Monthly Deposit form. For these states and forms, make your prepayments directly to the state and then report the prior payments in AvaTax Update so that you don't end up paying that liability a second time.

Once you've scheduled any returns that you need for your prepayments, contact Avalara Support to make sure that your prepayment requirements are thoroughly documented. After everything's set up and your prepayments have been automated, find payment confirmations and bank trace IDs in Returns on the 5th of the month after the payment was issued.

Understand how Avalara calculates your prepayments

Avalara bases its prepayment calculations on data from your returns in previous years. If you don't have any prior returns in Returns, provide information about your previous returns so that Returns can calculate your prepayments. If that information isn't provided, Avalara isn't responsible for notices or penalties that might arise from you not making the correct prepayment.

If the value of the prepayment that Returns calculates for you is $500 or less, then it rounds the prepayment up to the nearest $50. If the amount is over $500, it rounds up to the nearest $100. Prepayments are carried over to the next filing period as prior payment credits, so you never lose money from this rounding, but be aware that the amount that Returns pulls from your account to remit to the jurisdiction may be larger than the actual prepayment value.

If you don't want to use the amount calculated by Returns, change the amount remitted for your prepayment. Avalara isn't responsible for notices or penalties that result from you underpaying after you make adjustments to your prepayments.

Returns uses all committed transactions in a jurisdiction to calculate prepayments. Uncommitted transactions and transactions that are added to AvaTax Update after the prepayment has already been calculated aren't used.

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