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Prepaying your taxes through the year ensures you don't end up with an Underpayment of Estimated Tax (UET) penalty when preparing the year's tax return. To avoid that penalty, you want to make sure that you have prepaid (by way of withholdings from your retirement income or making estimated tax payments) at least 90% of the tax calculated on your tax return.
Your estimate of 40-50% withholdings is high, in my opinion, given that the maximum income tax rate for 2023 is 37%. Check out our TaxCaster here! This application will allow you make entries of your estimated 2023 income and taxes withheld to determine any estimated balance due or refund for the year. This will allow you to calculate the actual tax and not overpay with the higher percentages.
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Elizabeth W., EA
