Is There a Penalty for Wisconsin Underpayment of Taxes?
Understand Wisconsin's tax underpayment rules, how penalties are calculated, and whether you may qualify for a waiver to reduce potential fees.
Owing taxes at the end of the year isn’t uncommon, but failing to pay enough throughout the year can lead to penalties in Wisconsin. These penalties encourage taxpayers to make timely payments rather than waiting until tax season to settle their obligations.
Thresholds and Payment Rules
Wisconsin requires estimated tax payments from individuals, sole proprietors, partners, and S corporation shareholders who expect to owe at least $500 in state income tax after subtracting withholding and refundable credits. The state follows a pay-as-you-go system, meaning taxes should be paid throughout the year rather than in a lump sum when filing a return.
Estimated payments are due quarterly on April 15, June 15, September 15, and January 15 of the following year. If a due date falls on a weekend or holiday, the deadline moves to the next business day. To avoid penalties, payments should generally cover at least 90% of the current year’s tax liability or 100% of the prior year’s liability. For high-income taxpayers—those with an adjusted gross income over $150,000 ($75,000 for married individuals filing separately)—the threshold increases to 110% of the prior year’s tax liability.
Payments can be made electronically through the My Tax Account system or by mailing Form 1-ES with a check or money order. Taxpayers with fluctuating income, such as self-employed individuals or seasonal workers, may use the annualized income installment method to adjust payments based on earnings.
Failure to Pay Enough Taxes
Wisconsin imposes an underpayment penalty when taxpayers do not submit sufficient payments throughout the year. The state evaluates underpayment on a quarterly basis, meaning penalties may apply even if the total tax liability is covered when filing a return. If a taxpayer delays a substantial payment until the fourth quarter, they could still face penalties for missing earlier deadlines.
Taxpayers with irregular earnings may need to adjust their estimated payments accordingly. Using the annualized income installment method can help align payments with actual earnings, potentially reducing or eliminating penalties.
Calculation of the Penalty
Wisconsin calculates underpayment penalties using an interest-based approach. The penalty is determined by applying the interest rate set by the Wisconsin Department of Revenue (DOR) to the amount of underpaid tax for each quarter it remains unpaid. This rate is adjusted annually and is based on the federal short-term rate plus 3%. For 2024, the rate is 12% per year, or 1% per month, compounded daily.
The DOR calculates the shortfall for each estimated payment period and applies the interest rate accordingly. If a taxpayer underpaid by $2,000 in the second quarter and did not correct the shortfall until filing their return the following April, the penalty would be assessed from the June 15 deadline until the payment date. The longer the underpayment remains, the higher the penalty accrues.
Penalties are applied separately for each quarter, meaning multiple missed payments can result in multiple penalty assessments. The DOR provides Form U to help taxpayers calculate their underpayment penalty but may also assess the penalty automatically when processing a return.
Potential Late Fees
Beyond underpayment penalties, Wisconsin imposes late fees for failing to file or pay taxes on time. If a taxpayer misses the filing deadline, the DOR applies a late filing fee of 5% of the unpaid tax per month, capped at 25%. This penalty continues to accrue until the return is submitted.
A separate late payment fee applies when a taxpayer files on time but does not pay the full amount owed. This penalty is 1% of the unpaid tax per month, also capped at 25%. Because this is in addition to any underpayment interest, delaying payment can significantly increase the total amount due. The DOR also charges statutory interest on unpaid balances at an annual rate of 18%, compounding daily, until the tax is fully paid.
Possibility of Penalty Waivers
Wisconsin allows taxpayers to request a waiver of underpayment penalties under certain circumstances.
Reasonable cause is one basis for obtaining a waiver. Taxpayers who can demonstrate that their underpayment was due to circumstances beyond their control—such as a natural disaster, serious illness, or an error by the DOR—may qualify. The state does not grant waivers simply because a taxpayer was unaware of the estimated payment requirements or lacked the funds to pay on time. Supporting documentation, such as medical records or correspondence with the DOR, is typically required.
Another basis for penalty relief is the safe harbor provision. If a taxpayer made estimated payments based on at least 100% of their prior year’s tax liability (or 110% for high-income filers) but still owed additional tax due to an unexpected increase in income, the penalty may be waived. First-time offenders with a history of compliance may also request leniency.
Requests for waivers must be submitted in writing, often using Form A-771, and should include a detailed explanation of why the underpayment occurred.