If you do not pay enough estimated tax each quarter, you must pay interest and penalties when you file your income tax return. The underpayment in each quarter is assessed from the estimated payment due date to the date the tax is paid. The interest and penalty are calculated as follows:
- Interest of 0.5% per month
- Penalty of 1% per month
How to Calculate the Total
Use Vermont Worksheet IN-152 to calculate the total interest and penalty or use one of the penalty and interest calculators. Enter the total on Form IN-111, Vermont Income Tax Return, Section 9, and include payment for the amount due with your tax payment.
| No. | Instructions | Title |
|---|---|---|
| 2210 (IRS) | Instructions | Underpayment of Estimated Tax by Individuals, Estates, and Trusts |
| IN-152 | Calculator (xlsx) | Underpayment of 2021 Estimated Individual Income Tax |
| IN-152A | Calculator (xlsx) | Annualized Income Installment Method for Underpayment of 2021 Estimated Tax by Individual, Estates, and Trusts |
The following are examples of where interest and penalty might apply:
- Your total tax last year was $800. This year it is $1,000. You have no withholding, but make four timely estimated payments of $150 each. The total estimated payments ($600) and withholding ($0) do not equal either last year‘s tax or 90% of this year’s tax, and this year’s tax from Line 26 less withholding and credits is not less than $500. You will owe interest and penalty on the underpayment.
- Your total tax last year was $800. This year it is $400. You had withholding of $100, but made no estimated payments. Your total withholding ($100) and estimated payments ($0) do not equal either last year’s tax or 90% of this year’s tax. However, your Line 26 tax, less withholding and credits, is less than $500. No interest or penalty will be assessed.
- Your total tax last year was $800. This year it is $1,000. You have withholding of $400 and make four timely estimated payments of $100 each. Your total withholding and estimated payments equal $800 which is 100% of last year’s tax. No interest or penalty will be assessed.
- Your total tax last year was $800. This year it is $600. You had withholding of $110, but made no estimated payments. The total of your withholding and estimated payment ($110) does not equal either last year’s tax or 90% of this year’s tax.