Payments and Penalties

The Internal Revenue Service announced that interest rates for the calendar quarter beginning January 1, 2011, will decrease by one percentage point. The rates will be: three (3) percent for overpayments [two (2) percent in the case of a corporation]; three (3) percent for underpayments; five (5) percent for large corporate underpayments; and zero and one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000. Interest rates for the calendar quarter beginning July 1, 2011, will remain the same as in the previous quarter April 2011-June 30th 2011. The rates will be: four (4) percent for overpayments [three (3) percent in the case of a corporation]; four (4) percent for underpayments; six (6) percent for large corporate underpayments; and one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000. Interest rates will decrease for the calendar quarter beginning Oct. 1, 2011. The rates will be: three (3) percent for overpayments [two (2) percent in the case of a corporation]; three (3) percent for underpayments; five (5) percent for large corporate underpayments; and zero and one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

You are not liable for the late filing penalty if you filed a Federal extension Form 4868. You are possibly still liable for a late payment penalty and interest amount if an underpayment exists.

A number of electronic payment options are available to taxpayers. Payments can be made online, by phone using a credit or debit card or through the Electronic Federal Tax Payment System. Taxpayers who e-file their returns may use the electronic funds withdrawal option for submitting an electronic payment. It’s possible, for example, to e-file in February or March but schedule the payment for withdrawal as late as April 15.Information on these options can be found on the Electronic Payment Options Home Page of IRS.gov. Yes. To pay by credit card, debit card or EFTPS go to irs.gov/e-pay. Generally taxpayers will be able to make payments using American Express, Discover, MasterCard or Visa. Note that Convenience fees (up to 2.35%) will be added to the amount due.

Generally, the IRS has three years after the date your return is filed to assess additional taxes. If you fail to report an item of income which is more than 25% of the gross income you reported on your tax return, then the IRS has six years after the return is filed to assess additional taxes. If the IRS can prove a fraudulent return was filed, then there is no time limit to assess additional taxes.

If the IRS can prove that a false or fraudulent tax return was originally filed with the intent to evade taxes, then there is no limitation on when the return is audited or when the tax may be assessed.

You may fill out IRS Form W-4V, voluntary withholding request. Speak to your local CPA about getting a copy of this form.

In the case of an individual, if the tax liability after certain credits and after subtracting federal withholding is more than $1,000, then a penalty for the underpayment of taxes is applicable. Penalties are figured separately for each of the four payment periods. Form 2210 is used to calculate the underpayment penalty. There are exceptions and waivers available that can be used to minimize or alleviate the penalty. Speak to your local CPA about the exceptions and waivers to minimize your penalty due. There are similar estimate payment requirements and penalty ramifications for corporations.

In a calender year, non-farmer taxpayers must make four installment due on April 15, June 15, September 15 and the following January 15. If the 15th falls on a weekend or holiday, it is due on the next work day. For fiscal year entities, the first installment is due on or before the 15th day of the fourth month of the fiscal year. The 2nd and 3rd installments are due on or before the 15th day of the sixth and ninth month of the fiscal year. The final installment is due by the 15th day of the first month of your next fiscal year. Farmers and Fishermen only make one installment payment by January 15 of the following year.

If your anticipated tax liability, minus any federal withholding is $1,000 or more, you must make quarterly estimated payments.
There are exceptions to this $1,000 requirement that your local CPA can explain to you.
Basically you can avoid a tax penalty if you meet any of these provisions: if your withholding payments are at least equal to either 90% of your current tax liability or 100% of your prior years liability;
if your AGI is $150,000 or less (75,000 if MFS); or if your AGI is more than $150,000, the payment must be at least 110% of your prior year liability.
Failure to pay required estimate tax installments in a timely manner will subject you to a penalty based on the prevailing IRS interest rate. Estimate tax payments are made on IRS Form 1040-ES.