Quote:
Originally Posted by braisler
BonesCPA, could you please explain why the IRS has underpayment penalties? Shouldn't I be able to forego withholding altogether and just pay the tax due at the end of the tax year? Said another way, why should I be forced to give the government an interest free loan until tax time? I always get a refund and this year it could be quite substantial due to overpayment. I approached my payroll department about decreasing the amount withheld from my pay and I was warned severely about these penalties. What gives?
I thought of messaging you with this question, but I figure that the answer might benefit the group.
Thanks in advance for your input.
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You're not giving the government an interest free loan, unless you're doing it wrong.
In most cases, you need to pay 90% of the current year tax or 100% of the prior year tax to be "penalty proof." This means either through withholdings or estimated tax payments. Interest charges, however, still apply.
Reason being is that you're being taxed as you make it, so cough it up in a timely fashion.