There can be a penalty for underpaying taxes. There are a couple of ways to avoid this penalty:
- Owing less than $1000 in tax after subtracting withholding and refundable credits
- If the amount of withholding and estimated tax paid is at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.
- For example, if your tax liability was $3000 in 2022 and will be $5000 in 2023, total payments will need to total at least $3000
100% of prior year = $3000 90% of current year = $4500 smaller amount is $3000
To increase 2023 payments, you can update your W-4 withholding and/or make an estimated payment to the IRS .
