As the interest rates for money market funds are over 5%, the estimated tax penalties that the tax authorities charge if no payment was made when due and other cases is around 8%.

To avoid having to pay that extra 8%, then, taxpayers should:

  • Make tax payments when due, especially estimated tax payments
  • Review any withholding if w2 employee or similar if there are changes from prior year wages
  • Perform a mid year and before year end reviews to make sure estimated tax payment are still accurate or you have other deductions – Tax planning
  • Follow the calculations below to avoid those penalties (IRS guidance from its website)
    • Your filed tax return shows you owe less than $1,000 or
    • You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less.