To avoid penalties, the IRS requires taxpayers to make regular contributions to their tax obligations throughout the year. Most individuals have their employer or pension holder withhold a specified amount from each paycheck or retirement money to cover the tax. If the withholding amount is below certain thresholds, there can be a penalty. Those taxpayers with significant interest, dividend, capital gains, or other income need to have additional money withheld or make quarterly payments to the IRS. According to the IRS, no penalty will be made for failure to pay estimated taxes if the tax liability, after credit for withholding is less than $1,000. Also, individuals need not pay estimated tax if they had no tax liability for the preceding tax year. Guidelines for who must submit quarterly payments are somewhat complicated, but taxpayers can generally avoid the penalty for failure to pay estimated tax by:
- paying at least 90% of the tax shown on the current year’s return,
- paying 100% of the tax shown on the prior year’s return.
More rules apply if the adjusted gross income exceeds $150,000, and when the income was received. The specific due dates the IRS has established for the quarterly payments are April 15, 2010, June 15, 2010, September 15, 2010,and January 18, 2011.
Please contact us if you have questions about your specific circumstances.