Taxpayers must pay income taxes during the
year through withholding and/or estimated tax payments to avoid incurring underpayment of
estimated tax penalties. Many taxpayers have significant withholding from wage income and
should not need to consider estimated tax payments. However, if you have significant
non-wage income and you expect to owe more than $1,000 with your return, you may need to
make estimated income tax payments to avoid penalties.
If you do not meet either of
these thresholds, you will be charged an underpayment penalty that will
be added to your balance due with your return. The penalty amount is equal
to the interest that would accrue on the underpayment for the period of
the underpayment. In essence, you will be borrowing your tax dollars from
the government. The rate of interest is adjusted quarterly.
Copyright © 2012 Donahue & Associates