Did you miss out on paying your tax liabilities in the fiscal year 2017-2018? We might have some good news for you!
The US Federal income tax works on a “pay-as-you-go” policy, which means that you pay your tax liability as you earn throughout the year. The most convenient way to manage your taxes is through withholdings. Withholdings refer to the amount an individual elects to be withheld from their income amount to cover their tax liabilities. Salaried employees do this with the help of their employers. For the self-employed lot, quarterly estimated tax payments work the trick.
People are required to make estimated tax payments if they meet the following list of requirements:
- They are expected to owe at least $1,000 in tax for the current fiscal year after subtracting all withholdings and tax credits
- They expect their withholdings and credit to be less than the smaller of
- 90% of the tax to be shown on the current tax return, and
- 100% of the tax shown on the prior year’s return covering all 12 months
What is Underpayment Penalty?
To understand how taxpayers are penalized better, here’s an example:
If your annual tax liability is $15,500, and the tax withheld from your paychecks say is $13,000, less than 90% of the total tax liability for the year than you are likely to get penalized.
However, with the new rules in effect, you will not be penalized even if you pay 85% of the total liability.
This bracket was reduced to help the taxpayers who unintentionally miss out on their tax payments.
How to claim Penalty Relief
Anyone can claim penalty relief on their potential underpayment penalty by filing Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts, with your 2018 income tax return.
Even a lot of DIY tax software solutions have their software embedded in a way that can help you get an estimate of the tax relief you deserve.
Avoiding underpayment penalty in 2019
If you feel like you did not withhold enough in 2018, you should consider re-evaluating your W-4 Form for 2019.
The salaried employees can adjust their withholding amount and submit it to their employer, while the self-salaried lot can re-adjust the amount they pay during the quarterly estimated tax payments. Either way, it is important for you to ensure that you don’t fall short on your tax withholdings because as of now, the tax relief bracket is only applicable to 2018.
For more detailed counseling on any tax-related issue, feel free to drop in a mail at firstname.lastname@example.org . You can also call us at (888)-482-0279 for an on-call consultation.