Why am I being charged penalty and interest?
Penalty and interest is charged for the following reasons:
• No estimated payments were received
• Estimated payments were received late
Note: late payments will be applied to the following estimated tax quarter
• Estimated payments were underpaid in one or more quarters
The Michigan Department of Treasury follows the Internal Revenue Service (IRS) guidelines for estimated tax requirements. Based on the IRS estimated income tax requirements, to avoid penalties for failure to make the required estimated tax payments, your total tax paid through credits and withholding must be:
90% of your current year's tax liability,
or 100% of the previous year's liability,
or 110% if your previous year's adjusted gross income is more than $150,000 ($75,000 for married filing separately).
Penalty is 25% for failing to file estimated payments or 10% of underpaid tax per quarter. Interest is 1% above the prime rate.