Paying taxes is often a balancing act. You want to pay just enough to avoid penalties yet avoid giving the government an interest-free loan.
There is a 0.9% Medicare surtax on earned income for those who make more than $250,000 a year ($200,000 for single folks). This situation can create a trap for married people. While your employer is required to withhold additional money after your wages exceed $200,000, if you’re married and in combination with your spouse earn over the threshold, you may have too little withheld. Those with a self-employed spouse may also fall into the land of the under-withheld. Consider filing a revised W-4 form to increase your withholding to solve this issue.
You can avoid underpayment penalties and interest if you pay your taxes either through quarterly estimated taxes or withholding. Pay estimated taxes based on the lower of the following:
- A) 90% of the tax shown on your current-year tax return, or
- B) 110% of the tax shown on your prior-year return (100% if your prior-year AGI was $150,000 or less).
Estimated tax payments are due four times a year. The four payment periods are:
- January through March, due April 15
- April and May, due June 15
- June through August, due September 15
- September through December, due January 15 of the following year
If any of the above dates falls on a Saturday, Sunday, or legal holiday, your payment will be timely if postmarked on the following business day.