I understand that if you pay 100% of last year tax through tax withholding, you don't owe an underpayment penalty if you did not pay enough tax.
Are there any exceptions?
I read Pub 505 Chap. 4 Underpayment Penalty (https://www.irs.gov/publications/p505/ch04.html) and I am wondering if you have to pay the tax withholding equally throughout the year for this rule to work?
I am asking because they mention that the Penalty is figured separately for each period.
It's hard to have a clear view at the beginning of the year and I am wondering if I can increase my tax withholding on my paychecks at the end of the year to make sure I cover 100% of last year tax when I have a better idea of my situation?
My wife is a contractor for a couple months at the beginning of the year but then will be an employee with tax withholding starting in the middle of the year so I am trying to see if I can just avoid paying the estimated payments for the 1st and 2nd quarter and catch up with tax withholding on the second half of the year.
Thanks
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It's a "pay as you earn" system which is why self-employed contractors pay estimated tax payments quarterly. I wouldn't wait until the end of the year as not enough may be withheld. The easiest thing to do is to adjust your tax withholding to cover 100% of the prior year's taxes due as soon as you file your tax returns for each prior year.
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