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Bayou Tiger 
LSU Fan
The Woodlands, TX
Member since Nov 2003
2925 posts
| Penalty for Under Withholding Income Tax? (Posted on 1/4/13 at 10:12 pm)
At what point is there some sort of penalty for not withholding enough to cover federal income tax?
Due to the nature of some of my bonus withholding, it looks like I will owe A LOT on April 15th.
Should I just pay it on April 15th, do I need to pay it as early as possible, and/or should I be expecting any extra penalties?
This post was edited on 1/4 at 10:18 pm
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bryso 
Clemson Fan
The Real Death Valley
Member since Dec 2006
26767 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/4/13 at 10:13 pm to Bayou Tiger)
I am curious to this too... think I am going to get nailed. 
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Cold Pizza 
Ohio State Fan
Member since Sep 2011
7639 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/4/13 at 10:33 pm to Bayou Tiger)
The line is pretty low, but I don't know exact. What I do know is I'm over it every year. But the penalty is minor. I do worry having to pay in every year will someday trigger an audit though.
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evil cockroach
LSU Fan
27.98N // 86.92E
Member since Nov 2007
3901 posts
 Online
| re: Penalty for Under Withholding Income Tax? (Posted on 1/4/13 at 10:53 pm to Bayou Tiger)
Many people claim 0 (not even themselves) so that when tax time comes , they've paid so much in payroll with holding tax, that they owe the IRS $0 come April 15 (you claim 0 people for payroll purposes, but then claim you and your family with April 15 comes ). By doing this you are giving the IRS a interest free loan for the year, but you'll always get some money back. I claim myself (I'm single) for payroll purposes. The IRS takes less out my check each month, but I usually end up owing them on April 15. I guess I could claim 15 and have almost nothing taken out of my check, but that sounds like a no-no even if you were to correct it on your taxes that you submit every April.
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LSURussian
LSU Fan
Baton Rouge
Member since Feb 2005
63146 posts
Online
| re: Penalty for Under Withholding Income Tax? (Posted on 1/4/13 at 10:56 pm to Bayou Tiger)
You can pay an estimated tax payment by 1/15/13 using the IRS form in the link below and it will be applied to your 2012 withholding taxes just as if it came out of your paycheck.
Just keep a record of how much you paid and give it to your tax preparer or include the amount yourself if you do your own taxes.
LINK
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Bayou Tiger
LSU Fan
The Woodlands, TX
Member since Nov 2003
2925 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/4/13 at 11:02 pm to LSURussian)
quote:
You can pay an estimated tax payment by 1/15/13 using the IRS form in the link below and it will be applied to your 2012 withholding taxes just as if it came out of your paycheck.
I would only do this if there was a penalty for waiting until April 15th, but thanks for the link in case that is likely.
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LSURussian
LSU Fan
Baton Rouge
Member since Feb 2005
63146 posts
Online
| re: Penalty for Under Withholding Income Tax? (Posted on 1/4/13 at 11:21 pm to Bayou Tiger)
You already said in your OP that you will owe "a LOT" on 4/15.
If you don't meet the safe haven rules for under withholding, you will have penalties and interest due on 4/15 along with your additional taxes.
quote:
General rule.
In most cases, you must pay estimated tax for 2012 if both of the following apply.
You expect to owe at least $1,000 in tax for 2012, after subtracting your withholding and refundable credits.
You expect your withholding plus your refundable credits to be less than the smaller of:
-90% of the tax to be shown on your 2012 tax return, or
-100% of the tax shown on your 2011 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers below). Your 2011 tax return must cover all 12 months.
If the result from using the general rule above suggests that you will not have enough withholding, complete the 2012 Estimated Tax Worksheet in the instructions to Form 1040-ES for a more accurate calculation.
LINK
This post was edited on 1/4 at 11:31 pm
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Bayou Tiger
LSU Fan
The Woodlands, TX
Member since Nov 2003
2925 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/4/13 at 11:50 pm to LSURussian)
True, but after reading your link I think I meet the safe haven rules. Withholding for 2012 was more than 110% of what I paid in 2011 taxes. Thus I can just wait until the deadline to pay without a penalty. Thanks for that article.
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bunky
LSU Fan
FREE EL GUACHO
Member since Jul 2011
4335 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/5/13 at 8:58 am to Bayou Tiger)
I underpaid by about $2000 last year, it wasn't too bad...
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Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
12653 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/5/13 at 12:23 pm to Bayou Tiger)
There are several methods of determining the minimum amount of tax you are required to have withheld and/or deposited by January 15, 2013. The easiest is if your withholding for 2012 equals or exceeds your 2011 tax liability, then you will not be subject to penalties (the minimum withholding amount is increased to 110% of prior year's tax liability for AGI's above $150,000 in 2011). If your withholding is less than your 2011 tax liability, then make an estimated payment on January 15, 2013 that will make up the difference between your 2012 withholding and your 2011 tax laibility.
You can then pay the balance of your 2012 tax on April 15th no matter how large it is without penalty.
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Bayou Tiger
LSU Fan
The Woodlands, TX
Member since Nov 2003
2925 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/5/13 at 12:26 pm to Poodlebrain)
Thanks. It sounds like I am in good shape to pay later, except for the huge tax bill.
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Spankum
LSU Fan
Miss-sippi
Member since Jan 2007
26561 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/5/13 at 12:31 pm to Bayou Tiger)
I had the same shite happen to me a few years back and it was a total pain in the ass...poodle and russian give some good advice, but unless you are absolutely sure you are covered, I would just make a payment before the 15th. At todays interest rates, letting the fed hold some extra cash for a month or so is not a bad idea at all in that situation...
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tigeryat
LSU Fan
God's Country
Member since Oct 2005
2394 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/5/13 at 8:38 pm to Bayou Tiger)
That would be 15 lashes with a cane.
Sorry
If your AGI for 2011 was less than $150k, and you have 100% of your 2011 tax liability paid in for 2012 in the form of withholding on your W-2, you can pay any balance due on April 15 without penalty.
You will need to have 110% of your tax liability paid in if your income was over $150k to avoid a penalty.
If you don't meet one of the above exceptions, the penalty is 3% of the underpayment annualized. Pay the underpayment by January 15th and file form 2210 with your return, and maybe you can avoid or reduce the penalty.
This post was edited on 1/5 at 8:50 pm
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Gmorgan4982
LSU Fan
Hattiesburg, Miss.
Member since May 2005
89721 posts
Online
| re: Penalty for Under Withholding Income Tax? (Posted on 1/6/13 at 8:31 pm to tigeryat)
quote:
Pay the underpayment by January 15th and file form 2210 with your return, and maybe you can avoid or reduce the penalty.
The IRS has a "pay as you go" system so if he does have to pay estimated taxes and only makes a January payment, there will be a penalty for not making the other three payments.
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tigeryat
LSU Fan
God's Country
Member since Oct 2005
2394 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/6/13 at 9:55 pm to Gmorgan4982)
quote:
The IRS has a "pay as you go" system so if he does have to pay estimated taxes and only makes a January payment, there will be a penalty for not making the other three payments
The tax liability and underpayment is calculated by quarter on the 2210. If his bonus caused the underpayment and the bonus was paid in the 4th quarter, no penalty.
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Bayou Tiger
LSU Fan
The Woodlands, TX
Member since Nov 2003
2925 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/6/13 at 10:07 pm to tigeryat)
quote:
The tax liability and underpayment is calculated by quarter on the 2210. If his bonus caused the underpayment and the bonus was paid in the 4th quarter, no penalty.
Now I'm confused all over again. The bonuses hit throughout the year but primarily in the first quarter.
However, the article linked above mentioned safe haven provisions, specifically the withholding of at least 110% of last year's tax liability.
My understanding is that the safe haven provisions, if met, dispel any underpayment penalties. Is there yet another clause that trumps the safe haven?
I do TurboTax every year, but one of these days I should go talk to an actual accountant.
ETA: Never mind, I remembered that PoodleBrain responded above.  I will take that response to the bank.
If they try to audit me or hit me with an underpayment penalty, then I will print out this thread and send it to them via certified mail.
This post was edited on 1/6 at 10:15 pm
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fishfighter
LSU Fan
Baton Rouge
Member since Apr 2008
11142 posts
| re: Penalty for Under Withholding Income Tax? (Posted on 1/7/13 at 4:04 am to LSURussian)
quote:
You can pay an estimated tax payment by 1/15/13 using the IRS form in the link below and it will be applied to your 2012 withholding taxes just as if it came out of your paycheck.
This or go back and do a 1/4 tax form. Fine was set at $500 years ago for under payment at one time. Don't know now what it is.
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