Estimated Tax Penalty Calculator

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Have you paid quarterly taxes in 2021?

IRS Tax Penalty

The tax system in the US works on a pay-as-you-go basis, so the IRS collects income taxes throughout the year via payroll. Ideally, if you are a W-2 employee, you automatically get your taxes withheld by your employer. However, as a freelancer, taxes are a little more complicated. You’re your own employer, so you have to pay a bit extra in “self-employment tax” to contribute to Social Security and Medicare.

So, as a freelancer, you must make estimated tax payments if you owe $1,000 or more in taxes when you file your annual return. It’s the same case with corporations that expect to owe at least $500 to the government.

These estimated tax payments (1040-ES) are due on a quarterly basis, as shown below:

Payment Period
Due Date
Jan. 1 - Mar. 31
April, 15
Apr. 1 - May 31
(2 months)
June, 15
Jun. 1 - Aug. 31
September 15
Sept. 1 - Dec. 31
(2 months)
January 18

Failure to pay quarterly taxes on time can lead to penalties. The Internal Revenue Service can charge you a penalty for not paying quarterly taxes, or for delayed or inadequate payments, even if you’re due a refund when you file your tax return.

Now, if you’re wondering how much is the penalty for not paying estimated taxes? Well, gear up because these penalties can be very steep. There are several types of penalties that the IRS will impose on late taxpayers.

The three most common tax penalties:

  • Underpayment penalty
  • Failure to file penalty
  • Failure to pay penalty

If you manage to file and pay your taxes on time, you need not worry about the first two penalties. However, be aware of the estimated tax penalty. The Internal Revenue Service will charge you the estimated tax penalty if you fail to pay your full estimated tax amount.

The penalty amount fluctuates and changes during every single quarter of the year based on the current interest rate. The interest adds up on any unpaid balance and compounds daily from the due date of the return (regardless of any extension) until you pay the balance in full.

As mentioned above, the rate of interest is determined on a quarterly basis. For non-corporations, the interest rate for taxpayers is set to the federal short-term rate, plus 3%. The following represents the interest rate for the fourth quarter of 2021:
  • 3% for overpayments (2% in the case of a corporation);
  • 0.5 % for the portion of a corporate overpayment exceeding $10,000;
  • 3% percent for underpayments; and
  • 5% percent for large corporate underpayments.

You can use the IRS penalty and interest calculator to figure out the exact amount of interest you have to pay on a penalty. The IRS interest and penalty calculator calculates the penalty amount on the basis of your filing status, income, quarterly tax amount, and deduction method.

Underpayment Penalty

The IRS(Internal Revenue Service) can slap you with an underpayment penalty if you fail to make the full estimated tax payments.

Taxpayers can avoid this IRS penalty if they owe less than $1,000 in tax after withholdings and credits, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year.

How much is underpayment penalty?

The IRS underpayment penalty fluctuates and changes during every quarter. For the year 2021, the IRS charges a penalty of 3% which is based on the current interest rate or you can use FlyFin’s IRS penalty calculator.

To avoid the IRS underpayment penalty, you can choose between the following approaches:
  • If you expect to earn about the same amount as last year, you can take the amount of tax you paid on your 2020 return, and divide it by four, to figure out your 2021 quarterly estimated tax amount.
    • If you use this method but end up earning more money in 2021 than you did in 2020 (or end up with a bigger tax bill), you’d be required to pay additional taxes when you file your annual tax return. However, you won’t have to pay a penalty.
    • If your income drops by a significant amount, you may not be able to make excessively large payments that will just end up being refunded at the end of the year.
  • You can make quarterly payments equal to 90% of your current year’s tax bill.
  • If all of this sounds too complicated, you can simply opt in to use FlyFin’s Quarterly tax calculator.
    • It is powered by A.I. and backed by CPAs. All your expenses are categorized on the basis of your income and profession.
    • File an accurate tax amount and not a penny more. The entire process takes less than 5 minutes.
The IRS’ calculation for the penalty is based on the following:
  • Total underpayment amount
  • The period when the underpayment was underpaid
  • The interest rate for underpayments

For example if your income tax obligation for the previous tax year was $4,000. This year you withheld $4,500, but your income tax obligation is $6,000. Since you withheld more than the prior tax year’s income tax obligation, you do not have to pay the underpayment penalty. Now, assume that you made estimated tax payments of only $2,000. This is approximately 31% of your tax obligation ($2,000 divided by $6,500), and it is less than your prior year’s income tax. You will likely have to pay an underpayment penalty unless you meet other criteria specified by the Internal Revenue Service. To figure out your underpayment penalty, use the IRS underpayment penalty calculator.

Failure to Pay Penalty

This penalty is charged when you fail to pay your taxes by the due date.
  • The IRS late filing penalty is set to 0.5% of the tax owed after the due date, and for each month the tax remains unpaid, up to 25%.
  • After 10 days, the IRS will issue a final notice of intent to seize property. From there, the 0.5% rate of the late filing penalty increases to 1% per month.
  • The IRS penalty rate can be decreased to 0.25% for each month if an installment agreement is in effect.
  • You can avoid the IRS penalty if you can provide valid reasons for failing to pay on time. To figure out whether or not you owe a penalty, check out the IRS late payment penalty calculator.

Failure to File Penalty

You can be charged with the failure-to-file penalty if you file the returns after the due date, without a reasonable cause for filing late.

As per the IRS, if both a failure-to-file and a failure-to-pay penalty are applicable in the same month, the combined penalty is 5% (4.5% late filing and 0.5% late payment) for each month that your return was late, up to 25%.

If your return is beyond 60 days late, the minimum penalty for not filing taxes is either $435 (for tax returns with a due date after December 31, 2019) or 100% of the tax required to be shown on the return, whichever number is smaller.

One of the subtle differences between the above-mentioned penalties(late payment penalty) is that the estimated tax penalty is incurred throughout the year for not paying enough taxes while the other two penalties(failure-to-file and failure-to-pay late tax penalty) are incurred after the due date of the tax return.

Exceptions to the Penalty

Under certain circumstances, you won't be charged with the penalty such as:
  • You had no tax liability for the previous year, and you were a U.S. citizen or resident alien for the whole year.
  • The total tax shown on your previous year’s tax return minus the amount of tax you paid through withholding is less than $1,000
  • You’re a farmer or fisherman, and your withholding plus quarterly estimated tax payments are at least 66.67% of your previous year’s tax
  • A casualty or disaster occurred.
  • You’re retired or disabled.

Waiver of Penalty

File Form 843 if any of the following apply to you:
  • Your estimated quarterly payments were accurate and timely. (You owed $15,000 in tax and you paid $3,750 every quarter.)
  • You generated a large sum of your income later in the year. (You sold a stock or an investment and generated a profit.)
  • A huge part of your tax payments occurred earlier in the year. (You applied a large overpayment from last year’s return to this year’s taxes.)
  • You changed your filing status to or from married filing jointly.
    • You filed a joint return last year.
    • Your 2020 filing status isn’t married filing jointly.

You can also avoid the IRS penalty by changing your withholding. If you happen to realize before the end of the year that you’ll owe more taxes than you’re withholding, you can file a W-4 form with your employer. If by the end of the year you manage to withhold the full amount of taxes, you won’t be penalized.

However, you won’t reach the same result by making an estimated payment. If you make an estimated payment late in the year, the date matters when calculating the penalty. IRS penalty. To figure out your tax penalty amount, you can rely on FlyFin’s IRS penalty calculator. It helps you figure out the exact amount of penalty you have to pay. The IRS tax penalty calculator helps you determine how much tax penalty you owe Uncle Sam.

To calculate your tax penalty amount using the tax penalty calculator, you must provide the following information-

  • Your filing status (Single, Married filing jointly, Married filing separately, Head of Household)
  • Your income details (Taxes paid in the previous year and your current income)
  • Deduction method: Standard or Itemized
  • Quarterly taxes paid in each quarter

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