Question

Frederick failed to file his 2018 tax return on a timely basis. In fact, he filed his 2018 income tax return on October 31, 2019, (the due date was April 15, 2019) and paid the amount due at that time. He failed to make timely extensions. Below are amounts from his 2018 return: Taxable income - $120,000; Total tax liability on taxable income - $28,346; Total tax withheld from his salary - $25,000. Frederick sent a check for $3,346 in payment of his liability. He thinks that he has met all of his financial obligations to the government for 2018. For what additional amounts may Frederick be liable assuming any applicable interest rate is 6%?

Answer 1

Assuming the country is US

This is a case of late filing of return combined with late payment. Fredrick should file his return of income and pay the tax payable amount before April 15, 2019 but he had done that on October 31, 2019.

So he is liable for a interest payment of 6% (given in question) per month or part of the month of tax due. (Subjected to maximum of 5 months)

So Interest Liability = $3,346 x 6% x 5 = 1,004

(Actual delay is 6 and half months but limited to 5 months)

(As per law, the rate is 5% but in question it is given as 6%, so taken 6%)

Note :

Estimated tax paid constitutes 88.2% (25,000/28,346). So there is no short payment of estimated tax