I just found out I’ve been under-withholding for a year and I’m not sure what steps to take. I saw online that I can pay the IRS and my state directly, but I want to confirm if that’s true. If that’s not possible, what’s the best way to avoid fees? Thanks
For your online searches, try looking up ‘estimated tax payments.’ That should help you find what you need for both federal and state taxes. Check out the forms and instructions related to that.
They’ll take your money whenever you send it, no questions asked.
Avery said:
They’ll take your money whenever you send it, no questions asked.
So if I pay a large amount now, will I avoid a fee?
Avery said:
They’ll take your money whenever you send it, no questions asked.
So if I pay a large amount now, will I avoid a fee?
It depends on how much you underpaid this year. The underpayment penalty will be figured out when you file your taxes for 2024. It looks at your 2023 and 2024 taxes and is done quarterly. Since we’re already in late October, you might be facing an underpayment. But paying now will help lessen the impact instead of waiting until April.
@Avery
I was wondering if it’s better to pay everything I owe in one go or to adjust my W4 to increase my withholdings.
Flynn said:
@Avery
I was wondering if it’s better to pay everything I owe in one go or to adjust my W4 to increase my withholdings.
Withholdings are spread evenly over the year. I’d recommend going that route. For the future, being aware of under-withholding on a W4 can lead to issues, so try to avoid that.
Flynn said:
@Avery
I was wondering if it’s better to pay everything I owe in one go or to adjust my W4 to increase my withholdings.
If you have an IRA, you could withdraw from it, withhold 100%, and then pay it back within 60 days. That way, there’s no taxable income, no penalty, and no underpayment fee. But otherwise, adjusting your W4 is a good choice.
Yes. Two of my funds just announced their December distributions, which are much higher than in 2023 because of the stock market. I’ll catch up for January 15.
You can make payments anytime you want. If your withholding and payments are at least 90% of what your 2023 tax was, there won’t be any penalties.
Ira said:
You can make payments anytime you want. If your withholding and payments are at least 90% of what your 2023 tax was, there won’t be any penalties.
Unfortunately, I owe way more than 10%.
Ira said:
You can make payments anytime you want. If your withholding and payments are at least 90% of what your 2023 tax was, there won’t be any penalties.
What if you changed tax statuses? In 2023, I was married, and my ex and I made about 145K, took the standard deduction, and she had an extra $100 withheld. I had a bonus that was taxed too much, and we got about $2100 back from federal taxes. But now we’re divorced and I’ll be filing single. We sold our house and made some profit but owned it for less than two years, so I want to avoid penalties.
@Case
Sounds like you have a lot going on. I’d suggest meeting with an EA or CPA to figure out your taxes based on your previous return and what’s happening in 2024 with the house sale and divorce. They can help you decide how much you should pay to reduce your penalties. Now is a good time to get advice before they get busy.
@Ira
We won’t make much from the house sale. We sold it for just a little more than we bought it for and we’re splitting the profit. My job withholding is fine since they’ve over withheld for what I earn, and my bonus has been taxed too much. I’m just curious if the 90% rule changes when you go from married filing jointly to single.
@Case
You should be okay. Try downloading TaxCaster to enter your info. You can check your current withholding year-to-date and estimate what the year-end will look like.
Ira said:
@Case
You should be okay. Try downloading TaxCaster to enter your info. You can check your current withholding year-to-date and estimate what the year-end will look like.
Thanks a lot…I think I should be fine since on my W-4 I listed my withholding for the standard deduction. But since I’m single now and my income dropped, I might be itemizing my return because of half the mortgage interest, property taxes, state income tax, and medical expenses.
Ira said:
You can make payments anytime you want. If your withholding and payments are at least 90% of what your 2023 tax was, there won’t be any penalties.
You need to pay 100% (110% if your prior year AGI was over 150K) of last year’s tax or 90% of this year’s tax.