Estimated Tax Penalty
If you have not made the appropriate
estimated tax payments and you are required by the IRS to, then
you may owe the IRS estimated tax penalty. The IRS has penalty
for underpayment of estimated tax. So, who has to pay estimated
tax penalty and when will he or she has to pay it?
When will the IRS assess estimated tax
If a taxpayer did not pay enough tax
throughout the year either by:
then there will be an estimated tax penalty
for underpayment of estimated tax.
What is the estimated tax penalty?
A taxpayer can figure out his or her own
estimated tax penalty or have the IRS figure out the estimated
tax penalty for him or her.
What is the estimated tax penalty
The estimated tax penalty rate for
the penalty of estimated
tax underpayment for 2006 is figured at an
annual rate of 7% for the number of days the estimated tax
underpayment remained unpaid from April 16, 2006, through June
30, 2006, and 8% from July 1, 2006, through April 15, 2007.
How to avoid paying estimated tax
If you already missed your estimated tax
payments and you are required to make estimated tax payments,
then you will have to pay the estimated tax penalty to the IRS.
However, if you fall under the following categories, then you
may not be liable to pay the estimated tax penalty or even
estimated tax payments.
the total of your withholding and estimated tax
payments was at least as much as the previous
year's withholding and you paid all your estimated
tax payments on time
100% of previous years tax withholding if
your income was $150,000 or less, or
110% of previous years tax withholding if
your income was more than $150,000 ($75,000
if married filing separately)
the tax balance due on your return is no more than
10% of your total tax and you paid all the required
estimated tax payments on time
your total tax less withholding is less than $1,000
you did not have tax liability for the previous