To avoid an underpayment penalty, keep these key steps in mind:
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Meet safe harbor rules – You’ll need to owe less than $1,000 when filing and pay at least 90% of your current year’s tax liability or 100% of last year’s tax liability to avoid penalties.
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Stay on top of payments throughout the year – You can do this by increasing your paycheck withholdings or submitting quarterly estimated tax payments directly through the IRS’s Make a Payment portal .
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Adjust your withholdings – If needed, update your W-4 and use the IRS Tax Withholding Estimator to help determine the right amount.
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Request a waiver for penalties – If you’ve already incurred underpayment penalties, reach out to the IRS to request relief or file Form 843 (Claim for Refund and Request for Abatement) .
When estimating taxes, make sure to account for all income sources, including wages, interest income, capital gains, and more.
Best of luck!
