Penalties Guides

Penalties for Insufficient Federal Withholding

Most employers withhold federal income tax from their employee’s paychecks. However, if your employer doesn’t withhold these taxes or fails to take out enough of your paycheck for your federal income tax, you’ll need to make estimated tax payments each year. 

Failure to make quarterly estimated tax payments could result in a tax penalty. Read on to learn more about potential penalties for insufficient federal withholding and how our Levy & Associates team can help. 

What Are Estimated Tax Payments?

If your employer does not withhold federal income tax payments from your paychecks, you’ll need to estimate how much you’d owe in taxes for the entire tax year, then divide that amount into quarterly estimated tax payments. 

The IRS has four deadlines throughout the year on which estimated tax payments are due:

  • April 15
  • June 15
  • September 15
  • January 18 (following year)

You can use tax form 1040-ES to figure the amount you will owe in quarterly tax payments. This form will ask you to estimate your annual gross earnings, deductions, credits, and taxes. If you estimate too high or too low, you can adjust the form for the next quarter. 

You can send your estimated tax payments to the IRS online or in the mail. It’s okay if you estimate incorrectly — you can pay any remaining balance with your tax return or receive a refund for overpayment. You can also divide your payments into weekly or bi-monthly increments if desired, as long as you have paid enough by the end of the quarter.

Who Needs to Pay Estimated Tax Payments?

Anyone who thinks they will owe more than $1,000 in federal income tax when they file their annual tax return needs to pay estimated tax payments. Additionally, corporations typically need to make these payments if they owe at least $500 with their annual returns. 

However, you may not need to make estimated tax payments if your tax liability for the previous year was $0. You can also avoid making these payments by asking your employer to withhold more tax from your wages through a W-4 form. 

Our tax experts can help you determine whether you owe estimated tax payments and how much you should pay in quarterly payments. 

Penalties for Insufficient Federal Withholding

If you failed to pay estimated tax payments or made late payments in a previous tax year, you may receive a penalty from the IRS. 

The estimated tax penalty is typically 0.5% of the amount you owe for every month you did not pay that amount. The IRS may also charge an interest rate on the amount of taxes you owe. 

If this tax penalty applies to you, you will receive a letter from the IRS. 

How to Waive Estimated Tax Penalties

You may be able to waive this penalty if one of the following applies:

  • You owe less than $1,000 in federal income tax after any credits or withholdings
  • You paid at least 90% of your tax bill for the current tax year’s earnings or 100% of the previous year’s earnings
  • You retired after reaching age 62 in the tax year
  • You became disabled during the tax year
  • You could not make the payment due to a disaster or other reasonable circumstance

At Levy & Associates, we’ve helped numerous taxpayers like you avoid penalties for insufficient federal withholding. We can help you make estimated tax payments, determine your quarterly payment amount, pay your tax penalty, and apply for any waivers you may qualify for. 

Contact our team at Levy & Associates today at 800-TAX-LEVY to request tax assistance from one of our tax experts. 

Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.