Under our tax system, taxpayers are expected to pay as they go. Failing to do so can lead to underpayment penalties. Every taxpayer must prepay a safe harbor amount that represents a certain minimum percentage of the overall tax liability. Those who do not must pay a nondeductible interest penalty computed on a quarterly basis. The penalty amount is higher than what can be earned by a bank.
3 Ways the IRS Makes it Possible to Pay As You Go
To stay out of trouble, it is important to make sure that you are not underpaying the IRS. How can you avoid doing so? The IRS provides several methods for meeting this pay-as-you-go requirement. These methods include the following:
- Employers can make withholdings through payroll.
- Retirees can make withholdings of their pensions.
- Self-employed individuals can make estimated tax payments.
Unfortunately, some taxpayers make the mistake of underestimating the importance of prepaying the safe harbor amounts to the IRS. When this happens, they may find themselves dealing with significant IRS problems. Unpaid penalties can quickly snowball into even bigger problems, including withholding of personal tax refunds and other methods.
If you were hit with a penalty for underpayment of tax or were contacted by the IRS regarding a tax debt that you owe, it is important not to bury your head in the sand. Though it may be tempting to ignore the problem and hope it will go away, typically, doing so will only make your problem worse. Fortunately, we are here to provide guidance when it comes to dealing with the IRS. We have helped many clients reach successful resolutions to their tax problems. Learn more about the experiences of our past clients by checking out our client testimonials today.