When it comes to taxes, less isn't always more because if you don't withhold enough from your paycheck, you may end up surprised at how much you owe Uncle Sam at tax time. And the chances that you are under-withholding taxes could be higher than you may think. That's why it's important to withhold the correct amount from your paycheck to avoid underpaying the government.

Employer Withholding

Your employer is required to withhold taxes from your pay based on withholding tables provided by the Internal Revenue Service (IRS).

Income 澳洲幸运5官方开奖结果体彩网:tax withholding is based on the employee's expected filing status and the standard deduction for the year. In addition, taxpayers can choose to have 澳洲幸运5官方开奖结果体彩网:itemized deductions, 澳洲幸运5官方开奖结果体彩网:the Child Tax Credit, and other tax benefits reflected in their withholding for the year.

Withholding allowances were historically based on 澳洲幸运5官方开奖结果体彩网:personal exemptions, like the number of children or marital status, but these exemptions no longer exist due to changes made in the 澳洲幸运5官方开奖结果体彩网:Tax Cuts and Jobs Act (TCJA).

Why Under-Withholding Is a Problem

The U.S. tax system operates on a pay-as-you-go (sometimes called 澳洲幸运5官方开奖结果体彩网:pay-as-you-earn) basis, meaning you are required to have taxes withheld or pay estimated taxes during the tax year.

The elimination of the personal exemption, changes to withholding tables brought on by the TCJA, and the fact that taxpayers were encouraged, but not required, to file an updated W-4 Form may have resulted in under-withholding of taxes for millions of taxpayers.

People Who Should Be Concerned

You may find yourself under-withholding in the following circumstanc🃏es:

• You itemized in the past but now plan to take the higher 澳洲幸运5官方开奖结果体彩网:standard deduction.
• You are part of a two-wage earner household with no children or children aged 17 or above.
• You have 澳洲幸运5官方开奖结果体彩网:self-employment or other non-wage income.
• You received year-end bonuses, stock dividends, or capital gains.
• You owe the 澳洲幸运5官方开奖结果体彩网:alternative minimum tax or tax on the 澳洲幸运5官方开奖结果体彩网:unearned income of minors.
• You realized a profit from property sales.
• You live in a high-tax state and are losing part of your 澳洲幸运5官方开奖结果体彩网:state and local tax (SALT) deductions.
• You have significant unreimbursed employment-related expenses no longer deductible under TCJA.
• You have gambling winnings for which taxes were not withheld.

If any of these a🐼pply to 𒐪you—and you also failed to update your withholding—the risk of under-withholding is even greater.

When the Penalty Kicks In

An underpayment penalty may apply if the amount withheld (or paid through estimated taxes) is not equal to the smaller of 90% of the taxes you owe for the current year or 100% of the taxes owed in the previous year.

If a penalty applies, it is typically 0.5% of the amount owed for each month that amount was unpaid. The IRS may charge interest on the amount of underpaid taxes. Each quarter, the IRS sets that interest rate, and for Q1-2025, it's 7%. Please consult a tax professional to determine your exact interest rate.

Additional Available Waivers

The penalty may be waived undꦏer these circumstances🌠.

• You owed no taxes last year.
• You have a tax liability (minus payments already made) for this year of less than $1,000.
• You missed an estimated payment due to a casualty, disaster, or other unusual circumstances.
• You retired after reaching age 62, and that was the cause of the under-withholding.
• You became disabled during the previous or current tax year and failed to make estimated payments for that reason.
• You had any other situation in which underpayment was not due to willful neglect on your part.

Even if you don’t qualify for a waiver, you may be eligible for a reduced penalty in certain circumstances, including a change in marital status or substantial income realized late in the year.

What You Should Do

Determine whether you under-withheld taxes. Form 1040 and instructions are on the IRS website, along with many supplemental forms and schedules.

File Form 2210

If you under-withheld taxes last year, you mu🀅st file , with this year's income tax return no later than April 15 or tax day.

Complete Part I of Form 2210 and use the included worksheet and instructions to determinܫe whether a waiver applies in your case.

If a waiver does not apply, you will likely owe a penalty. In some cases, the IRS will figure the penalty for you, while in other cases, you must use Form 2210 to figure the penalty yourself. See Form 2210, instructions, and worksheet for more information.

The Bottom Line

Check your eligibility for a waiver as well as other waivers for which you might ౠqualify as it pertains to whether or not you under-withheld taxes.

If you under-withheld last year, whether you qualify for a waiver or not, check your withholding to avoid this problem in the future. Use the updated online to help you adjust withholding amounts.