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RDR5
Level 1

Not enough federal tax withheld

I've seen similar posts but I am still a bit confused on the timing and the possible penalty with the answer that was provided:

 

"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 (line 24), whichever is smaller.

 

As long as you pay in and/or have withheld enough tax to equal 100% of the prior year's tax liability there will be no penalty and you have until the due date of the 2022 return to pay the tax (with certain exceptions)."

 

 If I am just realizing now that I am behind and make a quarterly payment in September, am I considered late with what I should have had withheld earlier in the year? Or is it that as long as I am caught up between additional withholding and one quarterly payment (can I make just one?) by the end of the year there will not be a penalty?

 

Thank you!

1 Best answer

Accepted Solutions
Critter-3
Level 15

Not enough federal tax withheld

This is hard to put in a short answer but the skinny is you should "catch up" with the payments as early as you can.  On the return you could still have an underpayment  penalty  even if you  get a refund of overpaid taxes  because the program & IRS will compute the taxes on a quarterly basis dividing the total annual income  evenly in forths.   So if you earn the income unevenly you can pay the estimates unevenly however you will need to file a 2210AI to explain why the payments were uneven  and how the income was uneven and remove/reduce  the underpayment penalty.

 

Instead of estimates paid quarterly you can increase withholdings from a job or pension/SS  as withholdings are considered evenly paid thru the tax year even if all of the withholding happens in December. 

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1 Reply
Critter-3
Level 15

Not enough federal tax withheld

This is hard to put in a short answer but the skinny is you should "catch up" with the payments as early as you can.  On the return you could still have an underpayment  penalty  even if you  get a refund of overpaid taxes  because the program & IRS will compute the taxes on a quarterly basis dividing the total annual income  evenly in forths.   So if you earn the income unevenly you can pay the estimates unevenly however you will need to file a 2210AI to explain why the payments were uneven  and how the income was uneven and remove/reduce  the underpayment penalty.

 

Instead of estimates paid quarterly you can increase withholdings from a job or pension/SS  as withholdings are considered evenly paid thru the tax year even if all of the withholding happens in December. 

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