For guidance on estimated tax payments and withholding, contact Adam Panek, CPA, Tax Partner at apanek@gsacpas.com or call 315.701.6328.

You can be subject to penalties if you don’t pay enough tax during the year through estimated tax payments and withholding. Here are some strategies to help avoid underpayment penalties:

Know the minimum payment rules. For you to avoid penalties, your estimated payments and withholding must equal at least 90% of your tax liability for the year or 110% of your tax for the previous year (100% if your AGI for the previous year was $150,000 or less or, if married filing separately, $75,000 or less). Warning: Watch out for underwithholding. See “What’s new! Underwithholding may still be a risk.”

Use the annualized income installment method. This method often benefits taxpayers who have large variability in income by month due to bonuses, investment gains and losses, or seasonal income (especially if it’s skewed toward the end of the year). Annualizing computes the tax due based on income, gains, losses and deductions through each estimated tax period.

Estimate your tax liability and increase withholding. If as year end approaches you determine you’ve underpaid, consider having the tax shortfall withheld from your salary or year end bonus by December 31. Because withholding is considered to have been paid ratably throughout the year, this is often a better strategy than making up the difference with an increased quarterly tax payment, which may still leave you exposed to penalties for earlier quarters.

Warning: You also could incur interest and penalties if you’re subject to the additional 0.9% Medicare tax and it isn’t withheld from your pay and you don’t make sufficient estimated tax payments.

Grossman St. Amour CPAs PLLC has been in business since 1957!   As a certified public accounting firm located in central New York, Grossman St. Amour CPAs provides businesses and individuals with accounting, audit, taxation, business planning and valuation, financial planning, investment consulting, and fraud examination and deterrence services.   For more information about how Grossman St. Amour CPAs PLLC can be of service to you, contact tkiesa@gsacpas.com, or call 315.701.6350.

Our firm provides the information on this website and social media platform for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind.  The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers.  Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.  Tax articles on this platform are not intended to be used, and cannot be used by any taxpayer for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer.  The information is provided “as is”, with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability, and fitness for a particular purpose.