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Underpayment Penalty of Estimated Tax

 
When will I owe penalty for underpayment of taxes?

If you did not pay enough tax either through withholding and/or by making estimated tax payments, you will have an underpayment of estimated tax. In general, you will owe a penalty if the total of your withholding and estimated tax payments did not equal the amount of tax you are required to pay during the tax year, that is at least the smaller of:

  1. 90% of your 2007 tax or
  2. 100% of your 2006 tax (or the rate that applies if you are a farmer, fisherman or higher income taxpayer).
 
Estimated tax penalty for each payment period

Because the penalty is figured separately for each payment period, you may owe a penalty for an earlier payment period even if you later paid enough to make up the underpayment. If you did not pay enough tax by the due date of each of the payment period, you may owe a penalty even if you are due a refund when you file your tax return.

 
What is the minimum amount of estimated tax payment I have to pay?

The minimum payment from withholding and/or by making an estimated tax payment for a payment period is the smaller of:

  1. 22.5% of your 2007 tax or
  2. 25% of your 2006 tax (or the rate that applies if you are a higher income taxpayer)

Underpayment Penalty of Estimated Tax


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