Tax Penalty Seems Wrong

[kyleighterry]

I helped file someone's Federal taxes about a month ago for 2023. He did not file an extension. He underpaid a total of $386 which he paid when he filed online. His total tax for 2023 was $2,903 ($2,507 was paid via W2). He just got a notice from the IRS that he owes a penalty on the $2,903 of $395 and interest of $25. The penalty is more than what he owed. I feel like the penalty should be based on the $386, not the total tax. Am I wrong?

[nelsona]

It sounds like the payment that was sent was not credited to the account.

However, realize not having enough withheld throughout the year does incur a penalty for under estimating there tax obligation. That would happen even if they paid their final tax bill in time in April. So the $395 looks like it is what he owed plus the penalty for what he didn't prepay.

The $25 interest would be interst on the $395 he owed since april. Whether or not you file an extension,all tax is owed for the year in April.

So I would be checking to what happened to the payment you sent in.

[olivew211]

If it doesn't work out, and he's right, then he should think about getting a penalty relief. This law firm explains how to do it: https://federal-lawyer.com/tax-attorney ... abatement/

[uiakur]

Even if they paid their last tax bill on time in April, that would still happen.

[ND]

first things first obtain from IRS an 'account transcript' and 'return transcript' to confirm that what IRS sees as filed matches agrees with what you think you filed. Too many times, this investigation turns up a mismatch and if does, you'll know exactly how to proceed - to first rectify that IRS had the correctly reported return.