THE ESTIMATED TAX PENALTY IS AT A 16 YEAR HIGH

Individuals and businesses that underpay their taxes during the year are assessed estimated tax penalties by the IRS. This penalty is calculated separately for each quarter based on the amount of unpaid taxes for a given quarter.

With the increase in interest rates in the past few years, the estimated tax penalty is now at 8% and since this is not deductible, the effective rate is much higher. The rate was 3% in 2022.

Estimated Taxes for Individuals

To avoid estimated tax penalties, individuals must pay the smaller of either:

• 90% of the total for the current year OR

• 100% of the total tax paid the previous year or 110% for taxpayers that have adjusted gross incomes (AGI) of $150,000 for married taxpayers ($75,000 for a single taxpayers).

Payments are due April 15, June 15, September 15, and January 15. If you are an S Corporation taxed at the entity level for Georgia taxes, payments are due April 15, June 15, September 15, and December 15.

Employees who receive a W-2 paycheck usually have enough withheld from their paychecks, however if additional income from investments, interest, dividends, rents & royalties are received without withholdings, these penalties may apply.

Self-employed individuals MUST make payments through the year to avoid penalties on the profits of the business as no taxes are withheld from distributions. This would include individuals in Partnerships, Sole Proprietors, and Owners/Investors of an S-Corporation.

For those that do not make timely tax payments, very few “reasonable causes” are considered by the IRS to waive or abate the penalties. These few are newly disabled individuals, casualty losses in Federal declared disaster areas, newly retired individuals or significant health issues.

If you have questions regarding your estimates, feel free to reach out to us!

Mark & Lee