 Show Individual Income Tax (per DC Code 47-4214 “Underpayment of Estimated Tax by Individuals”) The following requirements apply to taxpayers whose withholding does not fully cover their annual tax liability: 1. A taxpayer shall pay four installments of
estimated tax each year: 2. Quarterly estimated tax payments, plus withholding, shall normally (see # 3 below) total 25 percent of the lesser of: 90 percent of the tax due for the taxable year; or 110 percent of last year’s tax obligation (if the taxpayer was a 12-month DC resident during last year). 3. Taxpayers whose
income tends to arrive late in the tax year may select the “annualized income method” and pay (cumulatively): first quarter - 22.5 percent of tax due for the taxable year, based upon the annualized income for the first three months; second quarter - 45 percent of tax due for the taxable year, based upon the annualized income for the first five months; third quarter - 67.5 percent of tax due for the taxable year, based upon the annualized income for the first eight months; and fourth quarter - 90
percent of the tax for the taxable year. 4. Underpayments. The period for underpayment penalty assessment begins on the date when the quarterly installment payment is due (June 15, for example) and ends on the earlier of: the date that the payment is actually made, or the due date of the annual tax return (normally April 15). After the return is filed, the accrued underpayment interest for the year is added to the total tax due for that year. 5. The underpayment penalty will not be imposed if tax due (Line 41 of Form D-40) is less than $100, providing all required quarterly payments have been timely; or the taxpayer had no tax liability for the preceding 12-month year and was a DC resident during that preceding 12-month period. 6. The underpayment penalty will not be imposed if, upon appeal to OTR by the taxpayer, the Mayor determines that: (a) The taxpayer retired after having attained the age of 62, or became disabled in the taxable year in which the estimated payments were required to be made, or the underpayment was due to reasonable cause and not to willful neglect; OR (b) By reason of casualty, disaster, or other unusual circumstance, the imposition of the penalty would be against equity and good conscience; OR (c) The taxpayer dies during the taxable year. U.S. tax operates as a pay-as-you-go system. Many employees pay taxes through paycheck withholding. But if withholding doesn’t apply to you or it won’t cover all your tax obligations, you may need to pay estimated taxes quarterly. But what happens if you fail to pay proper estimated taxes, or not at all? Unfortunately, you could end up with a penalty for underpayment of estimated tax. To understand what can trigger a penalty, lets cover the details. For starters, adequately paying quarterly taxes by the dates below will help keep you from incurring the penalty for underpayment of estimated tax. For calendar year taxpayers:
Want to learn more about how you may be able to avoid this penalty? Check out our estimated tax safe harbor post. What is the underpayment of estimated tax?Underpayment of estimated tax occurs when you don’t pay enough tax during those quarterly estimated tax payments. Failure to pay proper estimated tax throughout the year might result in a penalty for underpayment of estimated tax. The IRS does this to promote on-time and accurate estimated tax payments from taxpayers. When doesn’t the estimated tax penalty apply?The good news is the IRS will not assess a penalty for underpayment of estimated tax if certain exceptions apply. You may qualify for an exception to the penalty if you:
The “estimated tax safe harbor” rule means that if you paid enough in tax, you won’t owe the estimated tax penalty. Here are the rules:
What is the penalty for underpayment of estimated taxes?If you’re questioning, “What is the penalty for underpayment of estimated tax?”, it’s not a static percentage or flat dollar amount. Here’s what will happen and how your late estimated tax penalty will be calculated. The IRS will send a notice if you underpaid estimated taxes. They determine the penalty by calculating the amount based on the taxes accrued (total tax minus refundable tax credits) on your original return or a more recent one you filed. Specifically, the IRS calculation for the penalty is based on the:
Form 2210 (or Form 2220 for corporations) will help you determine the penalty amount. You should figure out the amount of tax you have underpaid. This form contains both a short and regular method for determining your penalty. To calculate the penalty yourself (other than corporations):
You can let the IRS figure your penalty if:
Get help with the penalty for underpayment of estimated taxDetermining estimated tax is not the most straightforward tax topic. For hands-on tax help, learn about the ways to file with H&R Block. |
Is there a penalty for not paying quarterly estimated taxes
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