Underpayment Penalty for Estimated Taxes Explained

One of the most common questions in dealing with quarterly estimated taxes is, “What is the penalty if I underpay, or do not pay my estimated taxes on time?” While there are several considerations that can change the answer, there’s a pretty simple rule that applies to most estimated tax filers:
The IRS will charge daily interest on any taxes not paid on time, at an interest rate that is determined quarterly by the IRS. This interest rate is between 5-8% on an annual basis, and is only applied to the amount of underpayment.
A simple example will help explain this in more detail:
Suppose you estimated that you would owe $2,000 in income taxes for the 3rd quarter of this year. But, when you filed your actual taxes, it turns out you owed $3,000 in taxes for the quarter. Let’s assume the interest rate was 6% for the third quarter. One quarter of interest on the amount you owe ($1,000) would be about $15.

As mentioned, each situation is a bit unique – you should consider things like the safe harbor rule that could eliminate the need for you to pay interest. Or, if your estimate was within 10% of the actual income tax due, the IRS won’t charge interest. What’s most important is understanding that making your best estimate of taxes owed, and making that payment timely, is the best option.

But, as you can see, the IRS is fairly lenient as long as you give it an effort. With online solutions like Easy Estimated Taxes, determining the amount and making your estimated tax payments no longer need to be stressful.
Electronic Federal Tax Payment System Provider

Easy Estimated Taxes provides a simple and secure online solution for individuals seeking to make estimated tax payments electronically to the IRS.
Prices determined at the time of efile and are subject to change without notice.

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