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What is the 98% safe harbor rule?

Treasury Regulation 31.6302-1(e) states that no penalty applies if a deposit has a shortfall of the greater of 2% of the deposit or $100.  So, if a taxpayer has a $10,000 liability, the 98% rule says there is no penalty if he pays $9,800 on the due date.  Similarly if a taxpayer had a $1,000 liability, the $100 rule says there is no penalty if he pays $900.

For semiweekly taxpayers, the unpaid 2% or $100 must be paid on or the first Wednesday or Friday on or after the 15th of the month following the month in which the deposit was due.  For monthly taxpayers, the unpaid amount is due by the date the return is due.
 
In addition to simple designation of deposits, PayrollPenalty takes the amount of any liability and splits that liability into a 98% amount and a safe harbor amount.  We pay the 98% amount even if we could have paid the entire 100%.  In this way we save the 2% amount to deal with any deposit obligations that may occur before the 2% catch up date.

Have a question? Call 800-426-4741.  Limitation of Liability
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