Each year we are having to pay more to Uncle Sam and we can only take the standard deduction. How can we better prepare so we are not slapped with a huge tax bill in April? My husband and I both contribute 15-17% to our 401k's and I contribute $400 monthly to our HSA. Is it better to up any of these or just setup an additional tax withholding amount from our paychecks?
It depends. You can always add more to your 401(k)s or HSA. The maximums for 2025 are shown below.
It doesn't hurt to have an additional amount withheld just to get you close to even based on the following formula. Take the balance due for 2024, divide it by the number of pay periods remaining in 2025 (split it for each of you or have only one of you add it to your W-4. Enter the amount on Line 4(c) of the W-4 form.
Key Point: Eliminate any underpayment penalty by using the following information if necessary.
Generally, you can avoid the penalty if your total timely estimated payments and withholdings are greater than or equal to the lesser of:
You can also avoid the penalty if the amount you owe is less than $1,000 as long as any estimated tax payments you made are timely.
Note: High-income taxpayers. If your adjusted gross income (line 11 of your 2023 Form 1040) is greater than $150,000 (or $75,000 if you're married and file a separate return from your spouse), you can avoid a penalty by paying at least 110% of your total tax from the prior year.