Bonus

[cstinson65]

I anticipate receiving a significant bonus from my employer near the end of the year.  Will I be penalized if I end up owing more than $1000 in federal taxes because the bonus amount has increased my AGI?

[IrmaN]

@cstinson65 

Yes the bonus will affect your AGI.

While bonuses are subject to income taxes, the IRS doesn’t consider them regular wages. Instead, your bonus counts as supplemental wages and can be subject to different federal withholding rules. How much your employer withholds from your bonus depends on several factors, but generally if your bonus is equal to or less than $1 million, your bonus will be subject to a 22% withholding flat rate.

[IrmaN]

@cstinson65 

Underpayment of estimated tax occurs when you don't pay enough tax during those quarterly estimated tax payments. Failure to pay proper estimated tax throughout the year might result in a penalty for underpayment of estimated tax.

[rschule1]

Hi There:

Without adequate withholding, it's possible to incur an estimated tax penalty. My advice is to have your employer make an adequate withholding of tax in conjunction with year end bonus. A second option would be to make 1/15/2024 estimated tax payment. If you should go the estimated tax payment route, TaxCaster from Turbo Tax will help you estimate the amount of payment due. Please see link below:

TaxCaster 

[Ruth C-L]

Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of 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. In your case, you'll most likely avoid the penalty so long as you had withholding of at least 90% of the tax for the current year.

Ruth C-L, CPA, Attorney

[VolvoGirl]

If you do get hit with a penalty on 1040 line 38 you might be able to eliminate it or at least reduce it.  You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button