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Level 5

Question

underpayment penalty

Forum|Forum|2 years ago
January 31, 2024
2 replies
10 views

Hi

I checked the tax underpayment penalty. It seems that people with different salary, the threadhold is different. Can I simply think if my owed tax is less than 1000 dollar, I will be 100% safe without penalty?

Thanks

Level 15

Yes. with a limited number of conditions you can avoid a penalty if you owe less than $1,000 dollars.

The underpayment penalty may apply if any of these apply:

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.

Tax Underpayment Penalty: What It Is, Examples

Underpayment of Estimated Tax by Individuals Penalty

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Level 5

ah, so conditions are in parallel. If any of these three satisfied, the penalty will be avodied no matter you fill in tax as RA or NRA, right?

Level 15

here are the rules for the $1K exception

a) the balance due after subtracting taxes withheld from 90% of your 2023 tax is less than $1,000 or
b) your total taxes are less than $1,000

Mike9241

Level 5

thanks. Is it suitable for both RA and NRA tax return?

Helen

Level 15

Yes.

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