If you owe a tax penalty to IRS, tax time can be a frustrating moment. Here, you will gain knowledge on how to determine if you are an underpayment penalty debtor; you will also learn how you can pay such tax penalties and avoid incurring additional IRS fees.

Perhaps you will owe a penalty for underpayment of taxes on April 15? You may not know the answer to this question like many other people, not until you file your taxes. A penalty for underpayment may be added by the IRS if your tax debt is 1,000 dollars or above by the time you file your tax return.

A situation whereby a good number of your income is earned from wages; then you should not entertain any worries. If your withholdings are accurate on your paycheck, your employer would have held-back enough money to conveniently keep you out of the penalty range. If you belong to the category of people who earn substantial fund from investments or self-employment, you will have to bother about the tax penalty rules.

If you owe over 1,000 dollars tax, here is what you should do:

Perhaps you owe a debt of 1,000 dollars or above plus the taxes you paid already to the IRS during the year, the chances are you probably owe or may not owe a penalty. For you to know if you owe a penalty, there is need to access the previous year’s tax return. Check the amount of federal tax income you already paid in for this year and make a comparison of it with your total federal income tax bill last year. If your payment is at least, much as you owed last year; then you don’t have anything to worry about. If this is not the case, you probably could still be okay if nothing less than 90 percent of your entire tax liability for this year was paid. It is important to state that the rule differs for high-income taxpayers. What is given as “high income” varies every other year.

As instance, let’s assume you paid 15,000 dollars in federal income tax in 1999. In the year 2000, you owe a sum of 20,000 in taxes. Only 17,000 dollars was paid in taxes, so you are indebted to the IRS 3, 000 dollars more. In this case, you would want to find out if you owe a penalty? It may please you to know that the answer is no; the reason is that you paid in more tax during the year 2,000 than you owed in the year 1999.

If you are in debt of a tax penalty, the IRS would determine that for you at your choice; however, there is every possibility that additional charges would have accrued by the time you are notified of the penalty by the IRS. The wise thing to do is to be proactive and get the penalty paid off on time. Perhaps you and your tax advisor have found out that you are in debt of a penalty for underpayment, you can have it entered on your form 1040 and paid by the time you file your tax return. Provided you pay prior to the due date of your tax return, the penalty will not be raised.