Not enough federal taxes taken out

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Eurookat
Posts: 364
Joined: Sat Nov 29, 2014 12:44 pm

Not enough federal taxes taken out

Post by Eurookat »

This one is on me since I should've checked. My original W4 had an extra $300 deduction towards federal (each pay). I only caught this because I'm in the midst of filling out a w4 for my new job. anyways, I'm going to try my best and catch up with the new job but would I incur a penalty for not having enough taken enough?

I think we will be in the 24% bracket by the end of the year, we've been at 22% but I've gotten a significant raise that will most likely push us into the next bracket next year. My calculations shows I may owe a little more than 5k if in lucky.
terran
Posts: 2966
Joined: Sat Jan 10, 2015 9:50 pm

Re: Not enough federal taxes taken out

Post by terran »

You'll owe a penalty for underpayment unless you owe less than $1000, pay at least 90% of what you owe for the current year, or pay at least 110% of what you owed for the prior year since your AGI is likely over $150k (100% if AGI under $150k). Since you're paying taxes by withholding it doesn't matter when in the year you pay, so as long as you get your withholding adjusted to meet one of those safe harbors by the end of the year you won't owe a penalty. You can also make estimated tax payments directly to the Treasury Department, but you might owe penalties even if you meet a safe harbor because when you pay estimated taxes compared to when you earned income does matter when paying through estimated taxes. Don't drive yourself crazy. Even if you owe a penalty it's likely to be pretty small.
Last edited by terran on Sun Sep 19, 2021 8:27 am, edited 1 time in total.
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GMCZ71
Posts: 559
Joined: Sat Oct 13, 2018 8:05 am
Location: McMinnville, Or

Re: Not enough federal taxes taken out

Post by GMCZ71 »

Many roads get you there.
est tax payment
tax loss harvesting
max 401k - hsa
charity
up the with holding till end of year
John | * Friends and family and money | * What you recommend will have periods of underperformance. You will be blamed. | * You avoid the suspicion of "self-serving." by Taylor Larimore
Nowizard
Posts: 4827
Joined: Tue Oct 23, 2007 5:33 pm

Re: Not enough federal taxes taken out

Post by Nowizard »

Once, when experiencing a similar issue, we sent in an extra payment as an estimated tax in the last quarter of a year. Though technically subject to an underpayment, none was assessed.

Tim
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grabiner
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Location: Columbia, MD

Re: Not enough federal taxes taken out

Post by grabiner »

By default, withholding is treated as having been made evenly throughout the year, even if it wasn't. Thus, if you should have withheld $3500 more than you actually did, and you increase your withholding by $500 for each of the seven remaining paychecks this year, you will avoid the underwithholding penalty.

Check your state withholding as well; states have different safe harbor rules and penalties. The federal penalty is relatively small, essentially just interest, so if you are $1000 short, you might owe a penalty around $20.
Wiki David Grabiner
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