The Internal Revenue Service (IRS) is encouraging taxpayers to review their withholding status and make changes if necessary. Without action, the agency estimates 10 million United States taxpayers could face an unexpected tax penalty on their 2018 returns.
Why would the IRS penalize taxpayers? The IRS can penalize taxpayers for a number of reasons. This specific instance refers to the estimated tax penalty. This penalty applies to those who have failed to withhold sufficient funds from their paychecks or make required estimated tax payments throughout the year.
The agency explains the importance of estimated tax payments throughout the year due to the fact the United States income tax system is a “pay-as-you-go tax system.” As such, a failure to pay throughout the year negatively impacts the system. The agency has put forth penalties to encourage taxpayers to make payments throughout the year.
How much should be withheld from one’s paycheck? The exact amount varies for each taxpayer. The IRS has offered assistance to determine one’s tax obligation with a Withholding Calculator and other tools on its website. If the IRS determines one’s obligation was not met, it can issue a penalty.
There are certain situations that allow for a taxpayer to waive this penalty. Examples include the failure to make a payment due to a disaster or other unusual circumstance, retirement or that the taxpayer became disabled during the tax year in question.
What if the IRS claims I owe taxes and I do not agree? Those who are in the midst of a tax dispute with the IRS have options. You can dispute a tax bill. An attorney experienced in federal tax liability matters can help.