Tax Questions Blog
Estimated Tax Penalty
You will have to pay estimated tax penalty for underpayment of estimated tax. for not paying estimated taxes, for late payment of estimated tax, and for not filing estimated tax payment forms.
How much is the estimated tax penalty?
The estimated tax penalty is figured by the IRS based on the estimated tax penalty rate. The estimated tax penalty for underpayment of estimated tax for the 2007 tax year is calculated for the number of days the underpayment of estimated tax remains unpaid:
- from April 15 to December 31 at an annual underpayment of estimated tax rate of 8%
- from January 1 (following year) to April 15 (of the following year) at an annual underpayment of estimated tax rate of 7%
When will I not have to pay estimated tax penalty?
In general you don’t have to pay estimated tax penalty if any of the rules below apply:
- The total of your tax withholding and estimated tax is at least 100% of your previous year’s tax liability AND you paid your estimated tax payments ontime. (110% if your AGI was at least $150,000 or if your AGI was at least $75,000 and you file married filing separately.)
- The tax balance due is no more than 10% of your federal tax return AND you paid all the estimated tax payments required on time. That means, you can underpay your estimated taxes by 10% and won’t have to pay the estimated tax penalty.
- Your total tax less withholding is less than $1000. If you owe the IRS less than $1,000, you usually won’t be penalized for not paying estimated tax payments.
- You did not have any tax liability last year.
- You did not have any taxes withhold and your current tax for the year less household employment taxes is less than $1,000.
Tax Questions is a resource and information website only. We do not offer individual advice. For specific tax questions and answers, you are advised to consult your tax attorney.