How to Avoid Estimated Tax Penalties

How to Avoid Estimated Tax Penalties
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Estimated tax penalty usually applies when a taxpayer pays too little of their total tax
during the year. Each year, around 10 million taxpayers face an 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.
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With a little planning, taxpayers can avoid the penalty altogether. Here are few tips on
how to avoid estimated tax penalties
1. Taxpayers can avoid the penalty by
paying at least 90 percent of their total
tax liability in the year, either through
income-tax withholding or by making
quarterly estimated tax payments.
2. Taxpayers can consider increasing their tax
withholding in 2017, especially if they had a
large balance due when they filed their 2016
return earlier this year.
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3. Taxpayers can in general increase their
withholding by claiming fewer allowances on
their withholding form. If that’s not sufficient,
ask your employers or payers to withhold an
additional flat dollar amount each pay period.
4. Taxpayers who receive Social Security
benefits, unemployment compensation and
certain other government payments can also
opt to have federal tax taken out by filling out
Form W-4V and giving it to their payer
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5. Taxpayers whose income is not subject to
withholding should consider making quarterly
estimated tax payments to the IRS during the
year to avoid estimated tax penalty.
Tips to Make Estimated Tax Payments
 Use IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment
System (EFTPS) to easily pay estimated tax payments. For information on other
payment options, visit IRS.gov/payments.
Reference IRS Newswire
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