Understanding safe harbor for taxes

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Sho
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Joined: Wed Nov 24, 2021 8:38 am

Understanding safe harbor for taxes

Post by Sho »

We paid x amount in taxes in 2023, if we pay 110 percent of x in 2024( paid through out the year, taken by employer ) , we wouldn’t get penalty regardless of our taxes due at return next year ? Expect taxes to be more in 24.

Is this correct ?
We are both W 2
prd1982
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Re: Understanding safe harbor for taxes

Post by prd1982 »

Correct
Topic Author
Sho
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Joined: Wed Nov 24, 2021 8:38 am

Re: Understanding safe harbor for taxes

Post by Sho »

prd1982 wrote: Sun Feb 11, 2024 8:29 pmCorrect
Ok thank you
Initially I was thinking of paying some extra tax every month ,
But now I will just save it in CDs or T bills and pay when tax return time comes .
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arcticpineapplecorp.
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Re: Understanding safe harbor for taxes

Post by arcticpineapplecorp. »

Sho wrote: Sun Feb 11, 2024 8:22 pm We paid x amount in taxes in 2023, if we pay 110 percent of x in 2024( paid through out the year, taken by employer ) , we wouldn’t get penalty regardless of our taxes due at return next year ? Expect taxes to be more in 24.

Is this correct ?
We are both W 2
Estimated tax payment safe harbor details

The safe harbor estimated tax has three components, which we’ll outline here.

Generally, an underpayment penalty can be avoided if you use the safe harbor rule for payments described below. The IRS will not charge you an underpayment penalty if:

You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year, or
You owe less than $1,000 in tax after subtracting withholdings and credits

This rule is altered slightly for high-income taxpayers. If the Adjusted Gross Income (AGI) on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.

Your state will also have estimated tax payment rules that may differ from the federal rules.

source: https://www.hrblock.com/tax-center/irs/ ... x-penalty/
Higher Income Taxpayers

If your AGI for 2022 was more than $150,000 ($75,000 if your filing status for 2023 is married filing a separate return), substitute 110% for 100% in (2b) under General Rule, earlier.

For 2022, AGI is the amount shown on Form 1040 or 1040-SR, line 11.

source: https://www.irs.gov/publications/p505#e ... 1000194583

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source: https://www.irs.gov/media/167571
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ccieemeritus
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Re: Understanding safe harbor for taxes

Post by ccieemeritus »

What you are saying is true for Federal taxes, but each state may have different rules regarding their own safe harbor.

CA, for example, completely phases out the safe harbor around $1M. That seems like a lot, but if you sell a house you may hit it.
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tetractys
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Re: Understanding safe harbor for taxes

Post by tetractys »

Sho wrote: Sun Feb 11, 2024 8:22 pm We paid x amount in taxes in 2023, if we pay 110 percent of x in 2024( paid through out the year, taken by employer ) , we wouldn’t get penalty regardless of our taxes due at return next year ? Expect taxes to be more in 24.

Is this correct ?
We are both W 2
Your W-4 withholding should take care of it. If you have any doubts fill out a form 1040-EZ. Probably about halfway through the form it will tell you something like, ‘STOP, you don’t have to make estimated payments.’
Topic Author
Sho
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Joined: Wed Nov 24, 2021 8:38 am

Re: Understanding safe harbor for taxes

Post by Sho »

My withholding will be fine , my spouse has small 5-10 K of AGI, for which taxes are not with held throughout the year. My extra withholding takes care of it for the past few years , this year I don’t expect it to. But we will be paying 110 % or more of last year’s taxes this year .
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