Avoiding IRS Underpayment Penalties
Category: Tax Central Tags: Taxes Article Highlights: Pay-as-you-go System Safe Harbor Payments Situations Triggering Underpayments True Safe Harbors Congress considers our tax system as a “pay-as-you-go” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. These include: Payroll withholding for employers; Pension withholding for retirees; and Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding. When a taxpayer fails to prepay a safe harbor (minimum) amount, he or she can be subject to the underpayment penalty. This nondeductible interest penalty is higher than what might be earned from a bank and is