The year 2018 is here and you don’t want to start it off by stressing over tax penalties! There are several violations when filing and paying taxes that you should avoid, as you’ll end up paying more. We’ve listed some of the most common tax penalties to be aware of this year. Check them out below.
Tax Penalties to Keep in Mind for 2018
1. Underpayment Penalty
The underpayment penalty applies to wage earners whose income tax is withheld if their income doesn’t meet the tax liability required that year. In the case of advance payments of your 2018 tax liability, if the payment made is 90% less than your liability, that will also cause an underpayment penalty.
However, if what you owe is less than $1,000, no penalty will be imposed. If you are a wage earner and also have investments and income outside of your job, you can also fall prey to this penalty. Be mindful of your tax liabilities to avoid a tax penalty for underpayment.
2. Late Filing of Tax Returns
This is something small business owners must look out for. April 15 might be what most people remember as tax day, but small business owners must also remember their March 15 deadline. Tardiness on personal returns will cost a penalty of 5% of the amount owed for every month of late filing. Make sure you don’t miss your deadlines by checking the tax calendar.
3. Penalty for W-2 Errors
This is another rule business owners must know. A penalty is imposed when you don’t file a W-2 for an employee or when you make an error and don’t correct it. The later an owner submits the form, the higher the penalty will be. Filing within 30 days of the deadline costs $50 per form.
4. Trust Fund Penalty
Employers must deposit withholding taxes from their employees’ salaries to the United States Treasury. This is the company’s responsibility and failure to do so will make the company 100% liable for the undeposited funds. If a company outsources payroll to a third-party organization, it must always verify that the taxes are deposited.
5. Penalty for 1099 Errors
While companies must file for their employees’ W-2 forms, they must also file 1099s for their consultants. Form 1099-MISC is filed for independent contractors to whom they paid at least $600. Failure to submit a 1099, tardiness in doing so, and even non-promptness in correcting errors will result in the same penalties as those for W-2 forms.
6. Failure to File and Pay Penalties
Taxes and penalties may not be the best things in life, but there’s really no way to avoid them. In fact, trying to avoid them only makes things worse. Failure to file or pay balances due on April 17 will result in a penalty, which grows the longer the payments are delayed.
7. Not Having Health Insurance
The United States is big on health insurance, and if you don’t get some, you’re going to find yourself owing more taxes. Those who go for three full consecutive months with no health insurance will owe a tax penalty for the year. This can be calculated either as a percentage of household gross income or as a flat rate. The violator will pay whichever is greater of the two computations.
To learn more about what to watch out for in terms of taxes for this year, check out this video from NewsChannel 5:
As we pay different taxes, we are subjected to different tax penalties. While paying taxes and penalties isn’t fun, avoiding the responsibility will only make the matter worse. Therefore, keep an eye on what you owe the IRS and make sure you pay it on time.
What steps can you take to avoid a penalty on taxes? Let us know in the comments!
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