As we’re all well aware, the IRS isn’t very lenient when it comes to the collection of taxes. If you underpay, you will find yourself paying off a growing debt, as the IRS adds interest and penalties to your already outstanding debt. If you’re facing IRS tax liabilities, you’re likely not alone – in 2018, it was estimated that over 30 million taxpayers would owe taxes due to under-withholding and the United States’ less-than simple tax system.
What Are the Penalties?
Thankfully, if you paid all of your tax liability from the previous year or paid at least 90% of your liability for this year the IRS may waive the penalties for underpayment as long as you cover the difference before the next tax year rolls around. Otherwise, the late payment penalties are 0.5% of what you owe for each month of underpayment up to a maximum of 25%, plus interest. Interest rates change yearly but are usually around 3% charged quarterly.
Exemptions to Underpayment Penalties
Exemptions are available in certain circumstances, which include a total tax liability of under $1,000, retirement, unusual circumstances leading to a missed payment, or situations where you had a justifiable reason for underpayment. Often, reductions or exemptions to underpayment penalties are available in cases where your tax status changed due to certain circumstances such as marriage or divorce.
If you find yourself owing taxes, it’s important to take another look at your withholdings to ensure that they’re properly accounting for the tax you should be paying. If you need to make an adjustment, complete Form W-4 to change your withholdings. For those who are self-employed, be sure to make quarterly tax payments if you expect to owe money at the end of the year. In order to accurately estimate your quarterly payments, it’s recommended to either consult a tax professional or consult last year’s taxes as long as you’ve not had a significant change in income.
A tax extension is available to extend the deadline to file your tax return for an additional six months, but it is not an extension to pay. Your full payment is due by April 15th. Paying taxes you owe isn’t something you should put off for a later date. Ignoring payments due today will result in owing much more tomorrow, and the IRS won’t just forget about you. If you find yourself in deeper trouble with the IRS, contact us today at (305) 374-5544 to schedule a consultation.
Weisberg Kainen Mark, PL
Latest posts by Weisberg Kainen Mark, PL (see all)
- What’s the difference between a tax lien and a tax levy? - October 15, 2024