Wednesday March 2, 2022 – Most of my clients run a small business. And small business owners generally are required to pay the IRS an estimated tax each quarter, because, the United States income tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year..
In my experience, many don’t pay quarterly and this leads to an underpayment of estimated tax penalty.
The IRS wants to stop referring this as a penalty – because, technically, the IRS simply charges you for the interest on the payments you failed to make. Still sounds like a penalty to me.
The Taxpayer Advocate wants to “Recharacterize the penalty for failure to pay sufficient estimated tax as an interest charge.” She thinks calling it a penalty is bad for “tax morale.” And bad “tax morale” has an impact on tax compliance.
Attorney Steven A. Leahy explains the Penalty for Underpayment of Estimated Tax on Today’s Tax Talk.