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Who needs to pay estimated taxes?
Figuring out the payments - which are due four times a year - can be tricky.
In Lesson 18
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Money 101 Lessons
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There are plenty of circumstances in which such charges apply. Here are a few common ones:
Underpayment
Most of us look to April 15 as the day we must pay our taxes. Actually, it's the day we need to finish paying our taxes.
Indeed, the Internal Revenue Service will charge you a penalty if you haven't paid 90% of what you owe for the tax year or an amount equal to 100% of your tax liability for the prior year, whichever is smaller.
In other words, if you owed a total of $25,000 in taxes last year, and will owe $35,000 this year, you're in the clear as long as you have paid at least $25,000 by Dec. 31.
Late payments
There are three other key ways you'll get hit with extra charges if you don't give the IRS its fair share by the appropriate date:
If you file your taxes on time, but don't pay the full amount you owe, you may be charged:
- Interest on the unpaid tax from the due date of the return through the date of payment; and
- A late payment penalty.
If you file your taxes late and owe money, you may be charged:
- Interest on the unpaid tax from the due date of the return through the payment date;
- A late payment penalty and;
- A late filing penalty.
If you file for an extension but don't pay the tax you owe by April 15, you will avoid the late filing penalty. But you still may be charged:
- Interest on the unpaid tax from April 15 through the payment date; and
- A late payment penalty.
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