How to avoid a penalty for underwitholding

[amyBoston]

I received a $225 penalty for underwithholding in 2022.  I don't mind owing money for taxes due on April 15 (I would rather have the money earning interest in my savings account), but I don't want to pay a penalty for underwithholding.  How do I adjust my W-4 to withhold just enough additional money to avoid an underpayment penalty in 2023? 

I expect my income from my job to remain essentially the same in 2023.  My Social Security Retirement benefits increased 8.7%, as per the annual COLA.  

I would love to schedule a meeting with a tax expert to walk through the W-4.

Thank you.

Amy

[conniem123]

Hi amyBoston,

I hope you are having a good day!  I agree you don't want to pay a penalty for not having enough federal tax withheld through the year.  To possibly reduce or eliminate your underpayment penalty, when working on your 2023 tax return, search for annualizing your tax (use this exact phrase). This will take you to the underpayment penalty section and we'll take you through the steps to possibly reduce what you owe.

You can use our tool to see if your Form W-4 needs to be adjusted,

TurboTax's W-4 Calculator

You may avoid the Underpayment Penalty two ways;

1)  if you paid at least 90% of the tax shown on the return for the taxable year or

1)  100% of the tax shown on the return for the prior year, whichever amount is less.

I hope this information is helpful!