My wife and I are doing well financially.
We both received significant raises in the early part of last year, however the HR of one of our respective companies did not automatically increase our withholding.
I have just learned that the IRS expects a certain amount quarterly, and that if you don't withhold enough, they will essentially charge you interest — however, if you withhold too much, you have to wait for them to send the exact dollar amount (NO INTEREST), just whenever they get around to it.
I can hear my heart beating in my ears…
Penalty for underpayment of estimated tax
byu/QuadrataUrsi intax
Posted by QuadrataUrsi
5 Comments
If you had enough withheld to cover last year’s tax liability (or last year’s liability +10%, if you’re above a certain income), then you won’t have the underpayment penalty.
You also can tell your software to remove or suppress that penalty and make the IRS send you a bill, which they don’t always bother doing. There’s no additional penalty for doing this; you aren’t required to self-report the underpayment penalty.
The IRS does pay you interest if they are late in sending your refund.
You have the power to withhold close to break even. So why should they pay you interest if you voluntarily give them too much money? They didn’t ask you to do that. They just ask you to pay enough. Both scenarios are controlled by you and not by the IRS. lol you are gaslighting the government.
We incurred an underpayment this year. Penalty was $13
Just to be clear here – the IRS offers a guide to fill out your W4, an estimated tax liability calculator, and literally has the rules available on their website. You should be using the W4 guide and liability calculator, every year to avoid these exact issues.