Let's be clear: overpayment of taxes is in every way preferable to underpayment of taxes! The former is what the IRS expects -- and any money overpaid will be refunded eventually. The latter is against the IRS rules and will result in a penalty.
If you didn't 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.
There can be no refund of the estimated tax until the entire tax liability has been satisfied. Any amount paid as estimated tax for any taxable year shall be deemed to have been paid on the last day prescribed for filing the return (determined without regard to any extension of time for filing such return.)
However, the government does not pay interest on excessive estimated tax payments made by taxpayers. IRC § 6621(a) provides that the overpayment and underpayment rates are generally the federal short-term rate, plus three percentage points (or two percentage points for corporations).
You get an overpayment credit when your tax payments exceed what you owe. You'll automatically receive a refund of the credit. However, you can ask us to apply the credit as an advance payment towards next year's taxes instead of sending it to you as a refund.
We'll notify you if we don't accept your explanation. If we accept it, we'll reduce any tax increase due to the change. We'll refund any tax you overpaid if you owe no other tax or have no other debts the law requires us to collect.
Usually, you find about overpayment when you fill out your 1040 tax return. If you spot any, you can ask for the extra money back. However, if you left some money on the table in the form of a tax credit, you may hear from the IRS. There are a few credits that the IRS computers automatically check for.
If you realize you are owed an estimated tax refund, you'll need to request your money back from the IRS. When filing Form 1040, you'll need to include the address where you want your refund to be mailed. Hold tight because it could take up to 10 weeks to receive your refund.
If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter.
If the total of your estimated payments and withholding add up to less than 90 percent of what you owe, you may face an underpayment penalty. So you may want to avoid cutting your payments too close to the 90 percent mark to give yourself a safety net.
Generally speaking, it's better to overpay your taxes rather than underpay. A tax overpayment will result in a refund at the end of the year, which means your taxes are paid in full, and you receive the difference as a refund.
If you're a freelancer, a small business owner, or anyone else who earns non-wage income, then tax time likely comes more than once a year. That's because the IRS requires you to make estimated tax payments every three months on any qualifying income that wasn't subject to federal withholding.
Overpayment Application: The IRS allows you to apply any overpayment on your 2023 tax return to your 2024 estimated taxes. This overpayment will be treated as if it were made on April 15, 2024, even if you file your 2023 return in October.
An underpayment penalty is a fine charged by the Internal Revenue Service (IRS) when taxpayers don't pay enough of their estimated taxes due during the year, don't have enough withheld from their wages during the year, or pay late.
Always Overestimate, at Least a Little
If you're unsure of how much to pay each quarter, slightly overestimate your taxes.
Can I get my money back if I overpaid one quarter? Unfortunately, if you overpay during a quarter, you can't get that extra money back from the IRS until you file your income tax return. This is one reason why getting your estimated tax payments right is so important.
Estimated tax payment safe harbor details
The IRS will not charge you an underpayment penalty if: You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year, or. You owe less than $1,000 in tax after subtracting withholdings and credits.
Why is my tax return so big? In most cases, a big refund indicates you aren't taking all of the withholdings and tax deductions you're eligible for. You can fix this by adjusting your tax withholdings with your employer.
If the payments made exceed the amount of tax, then the amount of the overpayment is entered on the overpaid line in the Refund section of Form 1040. Taxpayers can choose to apply any portion of their overpayment to the following tax year or receive their refund as a check or direct deposit.
If you overpay your taxes, the IRS will simply return the excess to you as a refund. Generally, it takes about three weeks for the IRS to process and issue refunds. Prefer not to receive a refund? You can choose to get ahead on the following year's payments and apply the overpayment to next year's taxes.
An "overpayment" occurs when you pay more taxes during the year, either through withholding on wages or by making estimated payments, than what you owe. This can either be refunded to you or applied to your next year's taxes.
If you want to pay your estimated taxes on a more regular basis, you can divide your total tax amount by whatever increment you'd like to pay in; four quarterly payments is simply the minimum. Remember that it's always better to overpay your estimated tax payments than underpay.
“If you overpaid your taxes, you will receive a refund when you file the current year's income tax returns,” Kiely said.
If you're making estimated tax payments and have federal income tax withholding, you can increase your quarterly estimated tax payments or increase your federal income tax withholding to cover the tax liability.