Individual Estimated Tax Penalty Frequently asked questions.
The Internal Revenue Service (IRS) individual estimated tax penalty is a penalty imposed on individuals who do not pay enough tax throughout the year, either through withholding or estimated tax payments.
1. What is the IRS individual estimated tax penalty?
The IRS individual estimated tax penalty is a penalty imposed on individuals who do not pay enough tax throughout the year. This penalty is imposed on individuals who owe more than $1,000 in tax after subtracting their withholding and refundable credits, and who did not pay at least 90% of the tax for the current year or 100% of the tax shown on the prior year’s return (whichever is smaller) through withholding or estimated tax payments.
2. How does the IRS individual estimated tax penalty work?
The IRS individual estimated tax penalty is calculated based on the amount of tax that was not paid during the year. The penalty is generally calculated as a percentage of the underpayment of tax for each quarter that the underpayment occurred. The penalty rate is determined by the IRS and may change from year to year.
In some cases, the penalty may be reduced or eliminated if the individual can show that they had reasonable cause for the underpayment and acted in good faith. For example, if the individual’s income varied significantly from year to year, or if they had a medical emergency or other unforeseen circumstance, the penalty may be reduced or eliminated.
3. Important considerations!
It is important for individuals to make estimated tax payments throughout the year if they expect to owe more than $1,000 in tax after subtracting their withholding and refundable credits. Failure to make estimated tax payments can result in the imposition of the estimated tax penalty.
In addition, it is important to keep accurate records and seek the advice of a qualified tax professional to ensure compliance with tax laws. By taking these steps, individuals can avoid estimated tax penalties and ensure compliance with tax laws.
4. What Information Do I Need?
When you contact us we’ll go over everything. We have you covered.