Every year, people who work pay taxes. If the taxes are taken off by an employer, there is less chance of mistakes occurring in regards to certain taxes. However, in certain instances, errors in payment occur. As a result, a penalty may occur.
Tax Underpayment Penalty
An underpayment is defined exactly what it indicates. It is when the amount paid fails to match the amount due. In the instance of taxes, an underpayment occurs when an individual pays less than the government considers the correct amount of tax. When this happens, the individual is penalized. The interest dating from when the period of income tax occurred is added onto the underpayment. The rate changes from-year-to-year and from quarter-to-quarter. The interest rate is short-term with a daily compounding interest. Yet, you will not have to pay an underpayment if the amount not paid does not exceed $1,000.
A tax underpayment penalty is set by the government and sent to you. It is calculated on what are the current market interest rates. If you wish to calculate it on your own, take a look at last year’s income tax return. Compare it to this year’s. If your total this year is at least 90% of your overall tax liability, you will probably not incur an underpayment.
Possible Targets
While many individuals never receive notification they are guilty of an underpayment, others do. One of the more common targets are individuals who claim what appear to be excessive exemptions. Never rely on exemptions as a means of reducing your taxes.
Obtaining A Waiver
The government may grant you a waiver under certain circumstances. These include the following:
- If a natural disaster impedes your ability to pay. This includes but is not limited to such things as casualty, disasters and extraordinary circumstances
- If you have retired during the period or part of the period for which the underpayment is due – this is usually age 62
- If, during the tax year, you became disabled
Hiring A Lawyer
Deciding what taxes you must pay and what exemptions are acceptable is a difficult undertaking. Determining the tax underpayment penalty is complicated. If you believe you may an issue of underpayment, talk to a taxation lawyer. He or she may be the only one capable of guiding you through what can be a complex and convoluted maze.
