Tax underpayment penalty and unemployment payment question?
So during the pandemic, I went on unemployment and chose not to withhold, thinking it would be as simple as paying back the taxes i owe later. After further looking into it, I read about tax underpayment penalty and how if I owe over 1k dollars in tax, i could have to pay an additional fee. I was wondering if this applies in my case where I received 16,525 in unemployment payment and haven't done any quarterly estimated payments
Also if it does apply, how much would that additional fee be looking like roughly
- AmyLv 72 months agoFavorite Answer
Yes, unemployment pay is taxable and you could easily end up owing over 1k, depending on how much other income you have and how much tax was withheld when you did have a job.
As a VERY rough estimate, expect the penalty to be 2% of your underpayment.
There are a few ways to calculate the penalty. Even the simplest is not particularly simple. You can use your total tax due vs withholding for the year. You can calculate how many days late your withholding and estimated payments were relative to the quarterly due dates. Or you can break down your income by quarter too.
I *think* that the IRS defaults to the second method if you don't attempt the calculation yourself.
Note that if you make an estimated payment right now, it will reduce the penalty calculated by the second or third method.
- Anonymous2 months ago
Make an estimated tax payment before the end of the year.
- JohnLv 62 months ago
The information provided is not sufficient to determine if you will even owe tax when you file, let alone an underpayment penalty. The underpayment penalty is based on your entire balance due per your tax return. That balance due would be the amount you had to pay after your deductions and/or credits. The underpayment penalty is not based on whether or not you withheld on one category of your income.
- JudyLv 72 months ago
Yes it does. But you still have one more chance. pay by Jan 1
- How do you think about the answers? You can sign in to vote the answer.
- SumDudeLv 72 months ago
If you do fall into the situation you described, yes you will owe the additional fee. [produce a practice 2020 1040 with good estimates] You can avoid this by sending the IRS a payment before 12/29 20 (give the mail time to do its thing), if working now you can change your W-4 and ask for more to be withheld (if the new form allows), or when doing taxes next spring put enough $ into a traditional IRA so that you owe less than $999 tax.