How Do I Know I Am Having Enough Tax Withheld?

Although your tax return is not "due" until April 15th of the following year, you are generally required to prepay your tax during the year.

In order to avoid an underpayment penalty when filing your return, you must pay in at least the lower of (1) 90% of your current year's tax liability or (2) 100% of your previous year's tax liability all over again. (Note: If your AGI last year was $150,000 or more - or $75,000 if married filing separately - change the 100% figure to:

Tax year 2000 106%
Tax year 2001 106%
Tax year 2002 112%
Tax year 2003 110% and all years after 2003

These payments may be made by having income tax withheld (in any proportion during the year), or by making four estimated tax payments with Form 1040-ES.

Note - you will not be penalized if you owe under $1,000 (amount due on 1040)

If you need to re-compute your withholding, obtain a copy of Form W- 4 from your employer. This form contains a worksheet that allows for most circumstances, and tells you what withholding status and how many "withholding allowances" to claim. Note that your status on Form W-4 could very well be different than your marital status, and the allowances different than the exemptions you are allowed to claim on your actual return. Form W-4 explains how this is done. Generally, if a couple is married filing jointly and both work, the number of allowances they claim in total will be less than they claim on the return itself.

If it is not possible for you to adjust your withholding to pay in enough tax, you will need to make quarterly estimated tax payments for any shortfall.

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We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.