Maximum Amount of Income Tax That Can Be Owed Without IRS Penalty

You can't wait until filing your taxes to pay.

You can't wait until filing your taxes to pay.

The Internal Revenue Service requires taxpayers to "pay as they go" rather than waiting until April 15 to make one lump-sum payment. There is no maximum dollar amount that you can owe without penalty. Instead, the amount you can owe without penalty depends either on your taxable income for the year or your tax information from the prior year. If you owe too much at the end of the year, you'll owe late payment penalties and interest.

No Penalties for Under $1,000

If you owe less than $1,000, you won't owe any penalties for not having enough withheld. The $1,000 limit counts the total amount due after considering all withholding, estimated taxes and credit. For example, if you owe $25,000 in taxes but you have $23,000 withheld and a $1,500 refundable tax credit, your tax bill is only $500. You won't owe any taxes or penalties.

If You've Paid 90 Percent of What You Owe

At the end of the year, if you've paid at least 90 percent of your total tax liability, you won't owe any penalties. For example, if your tax liability is $25,000 for the current year, you must have paid in at least $22,500. If you underestimate your tax liability, you could end up owing penalties. For example, if you expect to owe $25,000, but you end up owing $30,000 because you didn't account for a change in the tax laws or a deduction you're no longer eligible for, you'll often owe penalties. It also depends, however, on what you paid in taxes last year.

If You've Paid 110 Percent of Last Year's Bill

In general, you will avoid penalties if you estimated this year's taxes based on last year's tax bill. If your adjusted gross income is $75,000 or less, you owe no penalties if you paid the amount of tax that was due the year before. If your AGI is higher, you avoid penalties for underpayment by paying 110 percent of last year's taxes. Suppose -- using the earlier example -- you expected to owe $25,000 in taxes this year, but you actually owed $30,000. If you had owed only $20,000 in the previous year, and you paid based on your expectation of owing $25,000 this year, you would have paid 125 percent of last year's taxes. Even though this represents a $5,000 underpayment, you owe nothing in penalties, because you paid more than 110 percent of last year's tax obligation.

Equal Estimated Payments

If you make estimated payments, you have to pay the estimated taxes in equal installments throughout the year. This prevents taxpayers from not making estimated payments throughout the year and then making a large estimated payment at the end of the year. The quarterly payments must be made on April 15, June 15, September 15 and January 15 of the following year. For example, if you are making the estimated payments for the 2014 tax year, the last quarterly payment would be due on January 15, 2015.


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