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Ask the Experts All About the W-4! >> Event happening TOMORROW!
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'I just completed my federal taxes and owe money, i have a question about why there is an interest & penalty amount added to what i owe?.'

 
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1 Reply
JohnB5677
Expert Alumni

'I just completed my federal taxes and owe money, i have a question about why there is an interest & penalty amount added to what i owe?.'

There are IRS guidelines on when you will be charged a penalty or interest.

 

You must make timely payments.  A large payment towards the end of the year is not timely.  The IRRS expects a payment each quarter.

Please see if  Estimated taxes are right for you.

In addition, you can avoid the penalties with these guidelines.

 

  • The amount of tax you paid during the tax year is less than 90% of the tax that you owed for the current year.
  • The amount you paid during the tax year did not equal 100%, (110% for higher incomes) of your taxes owed the prior year.
  • The IRS also says you can probably avoid the penalty if the amount you owe is less than $1,000, after subtracting withholding and refundable credits.

"Typically, underpayment penalties are 5% of the underpaid amount, and they're capped at 25%. Underpaid taxes also accrue interest at a rate that the IRS sets annually."

 

To avoid this situation it is recommended that you adjust your W-4 with your employer or pay estimated taxes.

Underpayment of Estimated Tax by Individuals Penalty

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