It's Tax Penalty Time…
It is clear to me that the State of Illinois has finished processing all of their tax returns. I know this from the plethora of clients we have calling us frustrated with their tax penalty notices. I thought this would be a great time to post a blog about how, or more importantly why, this happens.
Federal Income Tax Penalties
When your Federal Income Tax Return is prepared, your income tax is calculated. Most taxpayers have their income tax withheld from their income sources such as W-2, Pension and Social Security. Others may pay quarterly estimated tax payments. Also, it is not uncommon for taxpayers to do a combination of the two. What it all boils down to is this: if you haven't had enough tax withheld or paid enough in estimated tax, then you are assessed a penalty. The IRS allows us to “estimate” your penalty and include it in your total tax owed. You write them a check and it is likely settled. It would be nice if the State of Illinois operated that way…but that is wishful thinking!
State of Illinois Income Tax Penalties
The State of Illinois does not allow for your penalty to be calculated by your tax return professional. When your return is filed and you pay your income tax due, it is just that, your income tax. Once the State processes the returns, they assess a penalty and start sending the nasty little notices that so many of you have received in the last week. This is not a notice that your tax calculation or payment was incorrect, it is simply the penalty assessed for not having enough withheld or paid in quarterly estimated payments.
Another important note is that even if we were allowed to calculate your tax penalty the damage is already done! To avoid a penalty in future years you may need to increase your withholding or estimated tax payments. We are happy to discuss this with you if you have questions or concerns.
I hope this helps clarify a little bit. Your preparer is not to blame for these notices; it is just the way the State operates.
P.S. Your 2nd Quarter Estimates were due Monday! Don't forget to Subscribe to Our Blog!