Payments and Penalties

Generally, you must pay estimated tax for the current year if you expect to owe at least $1,000 in tax for the current year, after subtracting your withholding and refundable credits and you expect your withholding and refundable credits to be less than the smaller of: 90% of the tax to be shown on your current year tax return, or 100% of the tax shown on your prior year tax return. Your prior year tax return must cover all 12 months. These percentages may be different if you are a farmer, fisherman, or higher income taxpayer. You do not have to pay estimated tax for the current year if you were a U.S. citizen or resident alien for all of the prior year and you had no tax liability for the full 12-month prior year tax year. You had no tax liability for the prior year if your total tax was zero or you did not have to file an income tax return.

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.

Yes. There are different penalty and interest calculations incurred for not filing timely, not paying and not paying timely, or when a balance due exists. You will want to avoid the failure to file by the due date when a balance due exists penalty. Therefore, file the tax return by the current years due date, April 15th 20XX, and pay whatever you can at that point in time to minimize your total penalty and interest calculations.

Yes. If two-thirds of your gross income is generated from farming, a estimated general rule exception exists. If you file your return and pay the entire tax due on or before March 1st, then you are not required to pre-pay amounts with estimates.

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.