Avoiding underpayment

[Oeb]

For the last 3 years, I’ve been putting 0 for dependents even though I have 2 children, so the max tax is removed from my pay so I don’t owe when I file, but this past year, I owed so much taxes, and had to pay an underpayment penalty.  so after filing, I went back into my W-4, and changed the qualifying amount to $4000 is this the right thing to do?  Under state (CA), I put 1 for Total # of allowances.  I file married and make less than my spouse.  How should I fill out my W-4?

[Emack_EA]

To avoid underpayment penalties and interest you need to make sure the IRS and other tax authorities get enough money from your income throughout the year through withholding or quarterly estimated tax payments.

Please note that you won't owe underpayment penalties if you meet any of the following:

you withhold or pay at least 90% of your total tax liability for the current year, or 100% of your last year total tax liability. 

However if your Adjustment Gross Income (AGI) is over $150,000 or $75,000 if married filling separately you must pay 110% of last year total tax liability. keep in mind if your total tax liability was less than $1,000 after subtracting withholding and credits, you won't be penalized.

In your case you may update W-4 withholding with your employers, or you may need to make quarterly estimated payments to the IRS and state tax authorities.

[Oeb]

I’m not clear on how to update my W-4. I want my employer to remove the maximum amount of tax from my pay so I don’t have to pay taxes when I file. And I can get a refund. Up until this change with the W-4, it meant putting zero but now that doesn’t even work. So what should I put under federal and state? My employer’s form only asks for Qualifying dependent amount USD under Fed. And # of allowances under State.  Is $4000 for dependents correct? What is the difference between putting 0,1, or 2 for Total # of allowances?  I appreciate your input.

[Emack_EA]

In that case then go to the page Extra withholding and add a Flat amount you want to withheld from each paycheck. for example if the amount of tax owe for prior year tax was $5,000 Divide that amount by 26 paychecks for the year and add the result ($192.3) to the extra withholding pages.