You'll have to pay an
underpayment penalty for 2016 if you owe more than $1,000 in taxes (after
withholding) and:
·
Your taxes withheld
don't cover at least 90% of what you owe for 2016, or
·
Your taxes withheld
aren't at least 100% of what you owed for your 2015 taxes, if your adjusted
gross income (AGI) is up to $150,000, or
·
Your withholding is
110% if your AGI is more than $150,000. (The AGI amount is $75,000 if you're
married filing separately.)
Example: In 2015 Ellen paid $6,000 total in taxes. She
changed jobs and thinks her income will be lower in 2016, so she plans to pay
$5,000 in estimated tax payments for 2016.
When Ellen prepares
her 2016 return, she has a bigger tax bill than she expected -$6,500, which is
$500 more than last year. Since Ellen only paid $5,000 in estimates, she must
pay a penalty on the underpaid tax.
Ellen would not have
had to pay a penalty if she had either:
- Paid $5,850 in estimated payment
(90% of 2016 taxes), or
- Paid $6,000 in estimated
payments (100% of 2015 taxes).
