My 2022 tax filing with TurboTax attached 4 payment vouchers for 2023 Form 1040-ES.However, the payment vouchers specify an estimated tax amount that is lower than that I should pay, especially in Q1 2023 due to bonus payout.
My company already withheld more than the amount specified in the payment vouchers, but per my calculation, I will still owe a few thousand dollars. Do I need to pay the remaining estimated taxes to avoid penalty?Or is it fine to not do so as long as my company withholds the amount greater than that specified in the payment vouchers during each quarter?
TurboTax generates estimated tax payment vouchers if you are self-employed or there was not enough withholding from your income. You do not have to make these payments; TurboTax calculated the estimated tax payments based on your information. Since you indicated that your withholding for 2023 is already greater than the estimated tax on the vouchers and that your company will withhold more than the amount estimated, you do not have to make the estimated payments. If you calculate that you will owe less than $1,000 after your withholding, you should not incur penalties.
For more information, please review the TurboTax Help article Guide to IRS Tax Penalties: How to Avoid or Reduce Them.
You can change the amount on the vouchers to whatever you wish to accomplish the withholding that meets your situation.
TurboTax generates estimated tax payment vouchers if you are self-employed or there was not enough withholding from your income. You do not have to make these payments; TurboTax calculated the estimated tax payments based on your information. Since you indicated that your withholding for 2023 is already greater than the estimated tax on the vouchers and that your company will withhold more than the amount estimated, you do not have to make the estimated payments. If you calculate that you will owe less than $1,000 after your withholding, you should not incur penalties.
For more information, please review the TurboTax Help article Guide to IRS Tax Penalties: How to Avoid or Reduce Them.
Thanks for the reply.
To clarify, in Q1 2023, my company did withhold an amount greater than the estimated tax on the vouchers, but it is still less than the exact tax amount if extrapolating to one year.
For example, if I earn $100,000/year, the estimated tax on the vouchers is based on $50,000 annual income, and my company's withholding amount is based on $80,000 annual income.
In this case, will there be penalties if I don't pay estimated taxes?
Yes, there would be penalties in the case you outline. But the amount is based on the tax return you file.
If you owe more than $1,000 when you file your taxes, you could be subject to a penalty.
The IRS calculates this penalty by figuring out how much you should have paid each quarter and multiplying the difference between what you paid and what you should have paid by the effective interest rate for that period. This means you can have a penalty for one quarter, but not the others.