Tax Penalty Calculator
Tax Penalty Calculator
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Estimated Tax Penalty
If you've never been self-employed, or you're new to freelancing or working as an independent contractor, it might be news to you that income taxes (and some others) in the US are actually not all paid at the end of the year.
If you've always been an employee of a company that receives a W-2 at the end of the year, you've already had your income, Social Security and Medicare taxes automatically deducted from your paychecks. What you don't know is that every quarter, your employer pays quarterly taxes to the IRS.
As a freelancer, you are your own employer, so you need to worry about paying your own taxes by the IRS 2023 estimated tax dates. But you also need to estimate what you owe based on your previous earnings.
For this, you can use the IRS Form 1040-ES. Failing to make accurate estimates could land you a costly fine from the IRS, like the estimated tax penalty. We’ll cover how to make estimated payments accurately and calculate your tax penalty amount if you do receive one using an IRS penalties and interest calculator.
Key Takeaways:
- Missing a payment or deadline for IRS estimated taxes leads to penalties.
- You also rack up IRS underpayment penalties for underpaying your annual taxes.
- An IRS late payment penalty calculator can tell you how much you owe and help you calculate the IRS late penalty payment.
Table of contents
What happens when you miss a deadline or a payment?...Read more
How much is the penalty for not paying IRS estimated taxes?...Read more
IRS Form 2210...Read more
How is estimated tax penalty calculated?...Read more
Failure to Pay Penalty...Read more
Failure to file penalty...Read more
Bounced check penalty...Read more
Exceptions to the Penalty...Read more
Can you pay quarterly taxes all at once?...Read more
How can I save on taxes?...Read more
What happens when you miss a deadline or a payment?
Missing an estimated tax payment or paying late can lead to estimated tax penalties in the form of fines and interest charges. Interest can add up quickly, so the quicker you pay, the less interest you’ll owe. If you want to see just how much interest you’ll need to pay, a tool like the IRS interest calculator will help. Even if you are owed a refund when you file your annual tax return, the IRS can still charge you these interest fees.
These estimated tax penalty amounts can add up fast for IRS-estimated taxes because of interest on unpaid taxes. You can check how much you might owe with an IRS late filing penalty calculator.
If you were making deliveries for Grubhub and Postmates for the last two years, for example, but this year, you forgot to make your second quarterly tax payment by the April 18 deadline, you would have to pay a penalty.
You can use an estimated tax calculator to figure out that you owe $600 by April 18 or an IRS interest and penalty calculator. Interest is 0.5% of that original amount for each month you don't pay in full, so you'll owe $603 until May 18, when the interest will be compounded again. An IRS Form 2210 can also help you figure out how much you owe.
How much is the penalty for not paying IRS estimated taxes?
There’s a thought looming in every taxpayer’s mind: what is the penalty for underpayment of estimated tax? Well, the IRS can slap you with an underpayment penalty if you pay on time but fail to make the full estimated tax payments. Check out a free IRS penalty and interest calculator for help calculating how much you might owe.
The penalty doesn't apply if you owe less than $1,000 in tax after withholdings and credits. Two ways to know if you have paid enough in estimated taxes are if you have paid at least 90% of the tax you will end up owing by the end of the current year or if you’ve paid 100% of the tax shown on last year's annual tax return.
IRS Form 2210
This form is essentially a simple worksheet that helps you calculate the IRS penalty amount by hand. You'll need to complete and include it with your tax return at the end of the year. Form 2210 instructions can be found on the IRS website, and other information about paying estimated taxes, including the IRS 2022 estimated tax dates. You can also access the Form 2210 calculator.
Best ways to avoid the IRS underpayment penalty
- If you expect to earn about the same amount as last year, you can divide the amount of tax paid on your 2021 return by four to figure out your payment for each quarter. If you do this, but you end up earning more in 2022 than you did in 2021 (or end up with a bigger tax bill), you’re going to be required to pay additional taxes, but only when you file your annual tax return, and you won’t have to pay a late tax penalty.
- Say you paid $8,000 in taxes last year. You could pay $2,000 each quarter to make sure you don't underpay your quarterly taxes. But, if your income drops significantly during the year, you can make quarterly payments equal to 90% of your current year’s tax bill. 90% of $8,000 is $7,200, and divided by four that's $1,800 you should pay each quarter.
- If all this sounds complicated, you can just use FlyFin's estimated tax calculator. It's based on your income, profession and expenses, and it's powered by A.I. and backed by CPAs, so you pay an accurate tax amount and not a penny more. The entire process takes less than 5 minutes.
How is estimated tax penalty calculated?
Underpayment penalties are calculated by the IRS based on:
- The total underpayment amount
- The period when the underpayment was underpaid
- The interest rate for underpayments
Failure to Pay Penalty
This estimated tax 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 and up to 25% for each month the tax remains unpaid.
- After 10 days, the IRS will issue a final notice of intent to seize property, and the 0.5% rate for 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 with the IRS goes into effect, and an IRS penalty calculator is the right tool to help you calculate this.
- You can avoid the IRS penalty if you provide valid reasons for failing to pay on time. To figure out whether or not you owe a penalty for underpayment of estimated tax, use an IRS late payment penalty calculator
Failure to file penalty
You can be charged with this penalty if you file the returns after the due date without a reasonable cause. Both the failure-to-file and failure-to-pay penalties are incurred after the due date of your tax return, while the late payment penalty IRS fee for quarterly estimated tax payments is incurred throughout the year.
If both a failure-to-file and a failure-to-pay penalty are applicable in the same month, the combined penalty for underpayment of estimated tax is 5% (4.5% late filing and 0.5% late payment) for each month that your return was late, up to 25%.
If more than 60 days have passed and you have not filed, the minimum penalty 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 is smaller. You can check how much your penalty amount might be using an IRS late payment penalty and interest calculator.
Bounced check penalty
One way to make your estimated tax payments is by writing a check. If your bank account doesn't have enough funds to cover the amount, your check will bounce and not go through. The IRS charges a 2% penalty of the total check amount unless the check is under $1,250. Then, you’ll be charged $25.
Keeping enough money in your account is key to making sure your check doesn’t bounce. If you do end up with a penalty from a bounced check, you can calculate how much you’ll owe using an IRS interest and penalty calculator.
Exceptions to the Penalty
There are some situations in which you won't be charged a penalty:
Let’s face it. No one wants a penalty. If you find yourself hit with a penalty, there just might be a way to have it removed. Having the IRS remove a penalty is called an abatement. If you can prove a reasonable cause, think a house fire or a tornado, or it’s your first tax penalty, the IRS might forgive you and waive your penalty.
You can file Form 843 to request a waiver of penalties if:
- Your estimated quarterly payments were accurate and paid on time
- You generated a large sum of your income later in the year from selling a stock or investment
- A large part of your tax payments occurred earlier in the year, for example if 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 2022 filing status isn’t married filing jointly
- Your filing status (single, married filing jointly, married filing separately, head of household)
- Deduction method: standard or itemized
- Your income details (taxes paid in the previous year and your current income)
- Quarterly taxes paid in each quarter
Can you pay quarterly taxes all at once?
Wouldn’t it be great if you could pay quarterly taxes in one lump sum? Unfortunately, the IRS won’t allow this and requires you to make payments quarterly if you expect to owe $1,000 or more in taxes.
How can I save on taxes?
Even if you end up paying a tax penalty, you can save money in other ways. Tax deductions can help lower your tax liability and reduce the overall taxes you’ll owe. There are two ways to take deductions: the standard or itemized deduction.
If you work from home and consider it your primary workplace, you can take advantage of deductions, including the home office deduction, the internet and phone deduction, the home office expense deduction or even the rent tax deduction.
If you travel for work, you can write off transportation costs, accommodations and even your rental car. The possibilities are vast when it comes to tax deductions, as long as it’s ordinary and necessary for your line of work. Tax deductions are a great way to save on taxes.
Frequently asked questions
FAQs
What are the penalties for not paying enough estimated taxes?
How do I avoid 110% estimated tax penalty?
Can estimated tax penalty be waived?
Is it OK to pay quarterly taxes late?
Can I pay estimated quarterly taxes all at once?
What is the 90% rule for estimated taxes?
Is the estimated tax safe harbor for 2023?
Can you pay too much estimated tax?
Can I pay estimated taxes more than 4 times a year?
What triggers IRS underpayment penalty?
What happens if I overpay quarterly taxes?
Can you split estimated tax payments?
What’s FlyFin?
FlyFin caters to the tax needs of gig workers, freelancers, independent contractors and sole proprietors. This tax tool is especially helpful for gig workers, who don't have tax support from an employer like W-2 employees do.
FlyFin tracks all your business expenses using A.I. to find every possible tax deduction. You can also consult our expert CPA team to file a guaranteed 100% accurate tax return. It saves you a couple of thousand dollars and a ton of time on your taxes.
Download the FlyFin app and have your 1099 taxes filed in less than fifteen minutes, saving you time and more money on your taxes than last year, guaranteed.
Expert tax CPAs ensure 100%-accurate tax filing
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