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underpayment penalty? what does this mean?
The US income tax is a pay-as-you-go tax, which means that tax must be paid as you earn or receive your income during the year. You can either do this through withholding or by making estimated tax payments. If you do not pay your tax through withholding, or do not pay enough tax that way, you might also have to pay estimated taxes. If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
There are special rules for farmers and fishermen.
Please refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
If you are a farmer or fisherman, the following special rules for underpayment of estimated tax apply to you.
The penalty for underpaying your 2010 estimated tax will not apply if you file your return and pay all the tax due by March 1, 2011. If you are a fiscal year taxpayer, the penalty will not apply if you file your return and pay the tax due by the first day of the third month after the end of your tax year.
Any penalty you owe for underpaying your 2010 estimated tax will be figured from one payment due date, January 15, 2011.
The underpayment penalty for 2010 is figured on the difference between the amount of 2010 withholding plus estimated tax paid by the due date and the smaller of:
662/3% (rather than 90%) of your 2010 tax, or
100% of the tax shown on your 2009 return.
Use Form 2210F - www.irs.gov/pub/irs-pdf/f2210f.pdf to figure any underpayment penalty.
Do not attach it to your return unless you check a box in Part I. However, if none of the boxes apply to you and you owe a penalty, you do not need to attach Form 2210-F.
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