Tax Question

[ny96]

This year for the first time we have an annual tax bill (about $7000). I think there are a couple different reasons, but the main one is the we are under withholding. We did not change our withholding, but we did make about $40,000 more in 2020. I checked the withholding calculator or the IRS website and it’s telling us that we should withhold an additional $536 monthly from our paychecks for next year. When I printed out our return it came with quarterly payment coupons. DH and I talked about the options last night and decided that we would prefer to just make another $7000 payment all at once next year rather than pay quarterly or add extra withholding. Can we do this without a penalty?

[awkwardpenguin]

It depends on your total tax bill and what percentage of your total tax bill $7000 is. The rules are complicated enough that I'm going to defer to this article:

turbotax.intuit.com/tax-tips/small-business-taxes/estimated-taxes-how-to-determine-what-to-pay-and-when/L3OPIbJNw#:~:text=The%20safest%20option%20to%20avoid,percent%20of%20your%20previous%20year's

Regular withholding underwithholds for dual earning couples and people with more than one job, and if you just leave it as is you do risk penalties if the difference between your withholding and total tax bill gets too large.

[sicilygirl]

For federal purposes (and assuming your are MFJ), you need to pay in 100% of 2020 tax (or 110% if your AGI is greater than $150,000) or 90% of 2021 tax. If you don't pay in at least that much throughout the year between withholding and quarterly payments and you owe more than $1,000 when you file your 2021 tax return, then you will be assessed an underpayment penalty.

[origami]

The same exact thing happened to us this year. We just redid our W4s to withhold extra every check from now on. I'm crossing my fingers that's good enough but I plan on rechecking that calculator every quarter. I don't want to make quarterly tax payments b/c I hate writing those checks and I'm annoyed we're even in this position. We each only work 1 regular salary job. I used to be self-employed and getting out of quarterly tax payments was (or used to be) a huge plus when I switched careers.

[k3am]

We do what you’re talking about. We haven’t bothered to adjust our withholdings and pay a small penalty (“convenience fee” as our tax guy calls it) each year. Probably not the most MM choice, but it works for us.

[k3am]

May 19, 2021 21:37:23 GMT -5 k3am said:

We do what you’re talking about. We haven’t bothered to adjust our withholdings and pay a small penalty (“convenience fee” as our tax guy calls it) each year. Probably not the most MM choice, but it works for us.

ETA: I save enough in a segregated account every month so that we’ll always have the funds to pay in April (or May, this year)

[ny96]

Thanks. This is what we’ll probably do. It looks like we’d owe an extra $300 which to us is worth it.

[k3am]

goldengirlz we have tried so hard to adjust withholdings every year and never got it right, so I just gave up. It’s easier since.

I have $x moved every week into a capital one sub account that’s just for taxes, so it’s almost like we never got it. Almost. But it helps psychologically to know that money isn’t “ours.”