Hi,
I understand you changed your W-4 withholding to lower your federal tax withholding to zero in anticipation of the electric vehicle credit and you want to know if you will get penalized for under withholding. The answer is "maybe." The IRS requires you pay your taxes basically as you earn your income. Jobs are really great at getting this right if nothing unusual happens (like a second job, a big credit or a self-employment gig that isn't figured into the employers withholding).
What the IRS cares about is whether you paid in enough taxes as the right time. Since it's complicated, they provide a safe harbor where you won't get penalized if you meet one of these three criteria:
- You paid in 100%-110% of prior year taxes (based upon your income level)
- You paid at least 90% of current year taxes
- You will owe less than $1K on tax due date (generally 4/15)
There is more detail in this TurboTax article. Take a peek. If you are worried, this article also tells you how to make estimated tax payments.
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