10 million taxpayers face an estimated tax penalty each year; ac - WSFA.com Montgomery Alabama news.

10 million taxpayers face an estimated tax penalty each year; act now to reduce or avoid it for 2017; new web page can help

© iStockphoto.com / Jason Lugo © iStockphoto.com / Jason Lugo

From IRS.gov

WASHINGTON — The Internal Revenue Service today reminded taxpayers assessed an estimated tax penalty for tax year 2016 that they still have time to take steps to reduce or eliminate the penalty for 2017 and future years.

To help raise awareness about the growing number of estimated tax penalties, the IRS has launched a new “Pay as You Go, So You Don’t Owe” web page. The IRS.gov page has tips and resources designed to help taxpayers, including those involved in the sharing economy, better understand tax withholding, making estimated tax payments and avoiding an unexpected penalty.

Each year, about 10 million taxpayers are assessed the estimated tax penalty. The average penalty was about $130 in 2015, but the IRS has seen the number of taxpayers assessed this penalty increase in recent years. The number jumped about 40 percent from 7.2 million in 2010 to 10 million in 2015.

Most of those affected taxpayers can easily reduce or, in some cases, eliminate the penalty by increasing their withholding or adjusting estimated tax payments for the rest of the year. With a little planning, taxpayers can avoid the penalty altogether.

By law, the estimated tax penalty usually applies when a taxpayer pays too little of their total tax during the year. The penalty is calculated based on the interest rate charged by the IRS on unpaid tax.

How to Avoid the Penalty

For most people, avoiding the penalty means ensuring that at least 90 percent of their total tax liability is paid in during the year, either through income-tax withholding or by making quarterly estimated tax payments. Keep in mind exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishers, casualty and disaster victims, those who recently became disabled, recent retirees, those who base their payments on last year’s tax and those who receive income unevenly during the year. For details, see Form 2210 and its instructions.

Taxpayers may want to consider increasing their tax withholding in 2017, especially if they had a large balance due when they filed their 2016 return earlier this year. Employees can do this by filling out a new Form W-4 and giving it to their employer. Similarly, recipients of pensions and annuities can make this change by filling out Form W-4P  and giving it to their payer.

In either case, taxpayers can typically increase their withholding by claiming fewer allowances on their withholding form. If that’s not enough, they can also ask employers or payers to withhold an additional flat dollar amount each pay period. For help determining the right amount to withhold, check out the Withholding Calculator on IRS.gov.

Taxpayers who receive Social Security benefits, unemployment compensation and certain other government payments can also choose to have federal tax taken out by filling out Form W-4V and giving it to their payer. But some restrictions apply. See the form and its instructions for details.

For taxpayers whose income is normally not subject to withholding, starting or increasing withholding is not an option. Instead, they can avoid the estimated tax penalty by making quarterly estimated tax payments to the IRS. In general, this includes investment income —such as interest, dividends, rents, royalties and capital gains —alimony and self-employment income. Those involved in the sharing economy may also need to make these payments.

Tips to Make Estimated Tax Payments

Estimated tax payments are normally due on April 15, June 15, Sept. 15 and Jan. 15 of the following year. Any time one of these deadlines falls on a weekend or holiday, taxpayers have until the next business day to make the payment. Thus, the next estimated tax payment for the fourth quarter of 2017 is due Tuesday, Jan. 16, 2018.

The fastest and easiest way to make estimated tax payments is to do so electronically using IRS Direct Pay  or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). For information on other payment options, visit IRS.gov/payments. Taxpayers may also use Form 1040-ES to figure these payments. IRS Publication 505, Tax Withholding and Estimated Tax, is a resource on withholding and estimated payments.

Remember that all of the web page addresses for the official IRS website, IRS.gov, begin with http://www.irs.gov. Don' t be confused or misled by Internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is http://www.irs.gov/.

*DISCLAIMER*: The information contained in or provided through this site section is intended for general consumer understanding and education only and is not intended to be and is not a substitute for professional advice. Use of this site section and any information contained on or provided through this site section is at your own risk and any information contained on or provided through this site section is provided on an "as is" basis without any representations or warranties.
INFORMATIONAL DISCLAIMER The information contained on or provided through this site is intended for general consumer understanding and education only and is not intended to be and is not a substitute for professional financial or accounting advice. Always seek the advice of your accountant or other qualified personal finance advisor for answers to any related questions you may have. Use of this site and any information contained on or provided through this site is at your own risk and any information contained on or provided through this site is provided on an "as is" basis without any representations or warranties.
Powered by Frankly