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With high and ever increasing taxes it is like burning your hard earned income with each year you file
As 2013 draws to a close, you've got one last opportunity to be sure you're in Uncle Sam's good graces when it comes time to settle up on your federal income taxes for the year. The IRS doesn't expect you to know exactly how much you'll owe before that April 15 day of reckoning. Still, you're required to be paid up to an amount fairly close to your total tax due early enough in advance of that date. If you're not, then you'll likely find yourself subject to a penalty, on top of your taxes due.

The way to avoid that penalty is to be sure you've paid enough in a timely manner to be covered by at least one "safe harbor" rules. These are the guidelines that the IRS uses to determine whether you've paid enough and in a timely enough manner not to owe underpayment penalties.

How Much Is Enough, and When?

If, through withholdings and/or timely estimated tax payments, you've paid enough so that when you pay the remainder of your tax on or before April 15, you:
  • Owe less than $1,000
  • Paid at least 90 percent of the total you owe for 2013, or
  • Paid at least 100 percent of the total you owed for 2012 (110 percent if you're classified as a "high earner")
...then you're covered by the safe harbor rules and won't owe underpayment penalties. (There are additional special rules for farmers and fishermen.)

For most people, it's probably too late to start making estimated tax payments for 2013 to avoid the penalty, as estimated tax payments need to be made in a timely fashion. The IRS' general rule on estimated tax payments is that, to be timely and avoid a penalty, the tax on money earned in:
  • January through March needs to be paid by April 15 of that same year
  • April through May needs to be paid by June 15 of that same year
  • June through August needs to be paid by Sept. 15 of that same year, and
  • September through December needs to be paid by Jan. 15 of the next year.
And yes, having the payment postmarked on that date counts as being timely.

Can You Still Avoid the Penalty?

Fortunately, all hope is not yet lost. If you get paid from an employer or have another source of income from which tax can be withheld, you have until Dec. 31, 2013, to pay enough through withholdings to be covered by safe harbor. Withdrawals from an IRA or payments from a pension, for instance, can have taxes withheld that count toward your safe harbor amounts.

For an ordinary wage earner, assume you ended up paying $3,000 in federal income taxes in 2012, on an income that didn't classify you as a high earner. As long as you had at least $3,000 withheld for federal income taxes in 2013, you're covered by safe harbor and don't owe a penalty for 2013. That holds true even if you cashed in a stock or a mutual fund with a huge capital gain and will wind up owing the IRS thousands more on April 15, 2014.

If you still have a paycheck coming in 2013, you might still have time to adjust your withholdings at work to have enough withheld to be covered by a safe harbor rule. The form you'll have to fill out and submit to your payroll department is called a W-4, and it's available from the IRS at this link.

Whether or not you can get the withholding changed in time depends on how much lead time payroll needs before your payday to make the change. With only a few weeks left in the year, you'd better act fast. If the money isn't withheld by Dec. 31, it won't count for this year's taxes.

So How Bad Is It?

If you're already out of time and find yourself forced to pay a penalty, the sooner you make the payment, the less it will be. The penalty is based on interest rates and is determined based on how much you owe and how overdue that money is. Thanks to low overall interest rates at the moment, the penalty isn't too bad right now, and it sits at 3 percent. If interest rates rise, though, that rate can move up for future quarters.

As low as it may be, that 3 percent penalty rate is more than you can earn on a safe short-term investment at the moment. Unless you actually feel the overwhelming urge to donate a little extra to the nation's operational budget, you'd be happier getting your taxes and penalties settled as quickly as you can.

Chuck Saletta is a Motley Fool contributor. Try any of our Foolish newsletter services free for 30 days.

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You should all move to Tennessee-no payroll tax-we do have property and sales taxes but that is on what you buy and own and not what you earn. You can make decisions not to buy certain things if you don't want to pay sales tax and also decide not to buy a house.

May 15 2014 at 9:42 AM Report abuse rate up rate down Reply
Sam Bernstein

You are fining me because my W-4 is not setup to take the correct tax and you can not wait till the end of the year ?

How can I get a job at the IRS ? Do you invent this stuff when you are bored ?

I bet the president, DEMS, REPUBS and IRS are high fiving themselves saying what a great tax this is TAXING the TAX. And Liberal media stenographers are cheerleading it on.

February 07 2014 at 9:00 PM Report abuse rate up rate down Reply
Terry Trojak

Not odd at all that all the freeloaders get their cash, food stamps, health care, heating, phones etc for free and never even pay a penny in state or federal taxes ? If you voted for Obama you would understand it perfectly , but I would think that you used logic when you voted and that\'s why it seems odd to you.

December 16 2013 at 8:58 PM Report abuse -2 rate up rate down Reply

Wait! I live in Florida - a blue state the last two elections, and we do not have state or local taxes! Next!*********** The only blue is the Gold coast of S. FL. and Miami. By land Mass it's extremely red. That's the way of much of the country. the larger the metro areas grow the more liberal they get as people demand more city services and politicians promise them more in exchange for their vote! But as we've all been witness to, when people want the impossible only liars can satisfy them, but only for a short time !

December 16 2013 at 6:05 PM Report abuse rate up rate down Reply
1 reply to obamasam0r0ntoo's comment
Henry ptnm

You live in Florida and you don't have state and local taxes? Every state has state and local taxes. You do not have a state income tax but you have a state sales tax. Plus you have property taxes and local and state governments have fees and permits. The only liar is you.

January 05 2014 at 4:20 PM Report abuse rate up rate down Reply

IRS should stand for international return service. By illegals, don't let the door hit ya on the way out.

December 16 2013 at 5:32 PM Report abuse +1 rate up rate down Reply

Abolish this disgusting department full of corrupt obama cronies.

December 16 2013 at 5:28 PM Report abuse rate up rate down Reply

IRS can't touch you or take anything from you if you do not sign up for obamacare unless you have overpaid your taxes and have a refund due. The refund is the IRS's ONLY option to get the penalty/fine/tax so DO NOT OVERPAY and you are safe from that money being taken. It is in the obamacare (PPACA) law page 131.

December 16 2013 at 12:21 PM Report abuse rate up rate down Reply

Or - do what thousands of people are doing right now - looking into leaving the US.

December 15 2013 at 8:15 PM Report abuse rate up rate down Reply

We need to Abolish the IRS and go to a Flat Tax. With these new Taxes and penalties from Obama care will just finish off the Middle Class and Working poor. Obama and The Dem don't care if you sign up for Health Insurance thats why the made it where the Insurance Policys on 5 or so million people would have to pay the tax, because of course means more tax dollars to spend on their Cronies. and I can bet you that along with the new Obama Care Tax will come penalties and Interest for not having it. If we the people don't wise up ;and rise up and get this Govt. Power Grabbers out of Office the will be no freedom left. I remember when you Worked paid your Taxes and could spend the remainder the way you wanted Now if you buy certain products that they have decided is not good for you they will Tax you twice the Amount and If you don't buy what they tell you to buy they will tax you out of your money . The IRS has become the Gestapo of this Administration. Once they come after you your life is OVER you can't Work, you Can't eat or live as they make sure they stop any income to buy food or housing. If you think that getting free money from the Govt. is worthwhile then you are fool as when they run out of Working Population they will start cutting you Welfare and EBT , they give and they can Take it. They will never give up theirs. Wise up get the likes of Harry Reid, Shummers and Pelosi's out of our lives.

December 15 2013 at 6:28 PM Report abuse +1 rate up rate down Reply
2 replies to jeansse's comment

Bless You for a SUPER GOOD POST.!!!!!!!!! And,,if you get NEGITIVES,,,,
Laugh it off,,,,because you know then,,,you did well.!!!!!!
100% CORRECT AND TRUE.!!!!!!!

December 15 2013 at 7:12 PM Report abuse -2 rate up rate down Reply

It's not federal taxes that are clobbering the middle class. Take a look at your state and local taxes and fees, especially living in a blue state or city.

December 15 2013 at 10:51 PM Report abuse -1 rate up rate down Reply
2 replies to obamasam0r0ntoo's comment

Wait! I live in Florida - a blue state the last two elections, and we do not have state or local taxes! Next!

December 16 2013 at 8:30 AM Report abuse rate up rate down

I lived in a "blue" state, Pennsylvania for most of my life. The state income tax was 2.8% and is now 3.07% on income over $5,000.00. I moved to Alabama, a "red" state and the state income tax is 5% on income over $3,000.00. I now live in Georgia, a "red" state and the state income tax is 6% on income over $7,000.00. If you choose to review income taxes by state and if you want to use facts, you will see that your statement is blatantly false!

December 16 2013 at 8:50 AM Report abuse +2 rate up rate down


Thank you for post.!!!! Growing up Democrate Family,,,,I knew no difference......Getting out of the Navy 1968....I seen different ways of life and realized,,,Republican was the better choice....But,,Now,,,,,I have seen,,,Rebublicans are not much better....
I am leaning toward new ideas....Being over 65,,,,I have seen a lot of changes in American way of thinking...
But,,,since 2006,,,,I have seen the destruction of America and how the people are now being divided against each other...And,,,how countries around the world are also being divided and how America is losing its face value with these countries...
Sadly,,,,the Democrates are the main problem,,,,,NO VALUES,,,MORALS,,,RESPECT AND ECT........and...Republicans are catching up also..........If Rebublicans do not START STANDING UP FOR THE ONES THAT VOTED FOR THEM,,,,I AM DONE WITH THEM ALSO..
Sadly,,I have seen the better of America....

It's nice to see that we still have people in our country with their thinking caps on.
I totally agree with your comment but unfortunately we're becoming the minority.
I was raised in France and have seen this country go down the tube because of the socialist regime they have decided to live under and sadly America is following their path.
France cooked their own goose, you can stick a fork in them, they're done but too many in our population refuse to see or believe that it also will happen to us if we continue to vote for the democrat socialist party., and you're also right about the republicans, they have made too many concessions for too long to the insanity the democrats have brought to our beloved America., foreigners of all kinds will take over and will dictate the way we should live, as if it worked so well in their native countries.
If we don't return to the basics and follow our constitution we're done.

December 15 2013 at 9:53 AM Report abuse +1 rate up rate down Reply