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Originally Posted by quickfeet
We made a cross country move this year and updated the tax forms with our employers (we assumed) and somehow saw a HUGE swing in our taxes to where we owed several thousand dollars. To top it off, this somehow puts us into getting 1040-es quarterly payment vouchers for 2024 that we have to pay ON-TOP of the taxes already being withheld. These payments equate to double what we ended up owing this year. The best part is payment one is due April 15th as well meaning I need to pay another 50% of what I paid this year immediately.
Any tax people here want to give me their thoughts?
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One needs the total of payroll withholding and estimated payments throughout the year to be enough to avoid an underpayment penalty. That's all.
To avoid an underpayment penalty, if one's adjusted gross income (AGI) is less than $150,000, the total of withholding and estimated payments must be either 90% of the current year's tax or 100% of the previous year's tax, whichever is less. If one's AGI is over $150,000, the total of withholding and estimated payments needs to be the lesser of either 90% of the current year's tax, or 110% of the previous year's tax.
See this page from the IRS:
https://www.irs.gov/taxtopics/tc306
There is no scenario I am aware of that would necessitate paying more than 100% or 110% of the previous year's tax during the year to avoid a penalty. You *will* have to pay whatever additional tax you owe in April however. So if in 2024 you will actually owe double what you paid in 2023, you will need to send a big check for that balance in April 2025.
It's nice to keep the taxes owed in your savings account, earning interest, provided you have the discipline not to spend it. You can really screw yourself if you don't have the money to pay your taxes owed come April 2025.
Your tax preparer probably set you up with large estimated payments so that you'll end up owing nothing. If you don't like the arrangement look into changing your estimated payments to give yourself a bit more breathing room during the year. Just remember anything you don't pay now you still have to pay later.
If you have questions, consult your tax professional.