@khurramch079 wrote:
Hi Opus
why i will get a tax penalty?
and what do you mean by bill
The tax system is supposed to be pay-as-you-go. You are required to pay into the system during the entire year. If you owe too much when you file your return, you can be assessed a penalty for not paying enough into the system during the year, even if you pay in full with your return.
To avoid a penalty, you must owe less than $1000 when you file your return, or your payments into the system must be at least as much as your tax for 2020, or you must pay at least 90% of what you owe for 2021. So if you think your tax will be $22,000 for 2021, you would need to pay at least into the system $20,000 before January 15, 2021. If your withholding will be $11,666, then you would have to make an additional estimated payment of at least $8334 before January 15. You get credit for that on your tax return.
If you can't make the payment, Turbotax will recognize that you under-paid, and will try to calculate a penalty to include in your tax payment. Don't take the Turbotax calculated penalty. Wait to see what the IRS does.
When you file your return, pay as much as you can. If you can't pay it all, you can request a payment plan for the balance. If the IRS determines you owe an underpayment penalty, they will mail you a bill. At that time, you can ask for a waiver of the penalty. Then, you will be charged interest every month on the unpaid part of your balance until you have paid your taxes in full. If you don't ask for penalty relief, you will also be assessed an additional penalty amount on the unpaid balance of your tax bill until it is paid off.
You can request penalty relief when you get your first bill with a penalty. You can request relief as a first-timer (if you never owed a penalty before, getting your first penalty canceled should be pretty automatic) or you can request the penalty be canceled "for cause". You will still be charged interest, because the IRS does not have the legal authority to waive the interest, but it would be recalculated to a lower amount if the penalty is canceled.
The penalty amount is 0.5% per month of what you owe, going back to when you owed it. For example, if you make no payments except your withholding and owe $10,000 when you file, the IRS will probably calculate that $2500 was due back in April 15, 2021, so from April 2021 to April 2022 that's 12 months so the penalty on that portion of the amount due would be $150. Then you owed another $2500 on June 15, another $2500 on September 15, and the final $2500 on January 15. 2022. So by April 15, 2022, if you make no additional payments, you could owe around $400 in penalties. The IRS also charges interest on both the penalties and the overdue taxes. It's a variable rate that is around 3-4% APR right now, so you would owe another $300 or so in interest by April 15, 2022, if your tax estimate is correct.
