If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty, something that will really irritate you if your like me.
If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
Funny right? take my money now and give it back later so the government can put it to use during that duration. The government uses the money wisely, don't they? Yah right?
Here is how to determine the amount to pay for estimated tax payments to the IRS in order to avoid paying penalties. This is especially important for people who have income from self-employment.
Individual calendar-years required quarterly payments that are due by April 15, June 15, September 15 and January 15 of the following year.
To avoid an underpayment penalty, total tax payments must equal or exceed any of the following guidelines.
- Pay 90% of the tax liability for the current years return
- Pay 100% of the tax liability from the prior year return if the taxpayers Adjusted Gross Income (AGI) was less than $150,000
- Pay 110% of the tax liability from the prior year return if the taxpayers Adjusted Gross Income (AGI) was more than $150,000
- No penalty is imposed if the estimated tax for the current year is less than $1,000 or the individual had no tax liability for the prior year. Also, the penalty is enforced only if you do not pay, not for failing to file.
If you pay in as much as your tax liability for the previous year, you can pay your balance due without penalty when you file your return, regardless of the amount.
The estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.
