The best way to prevent a big tax bill in April and avoid estimated tax penalties is to make sure you pay enough taxes as you go throughout the year
The two major ways to do that are
- through payroll tax withholding deductions
- by making the appropriate estimated tax payments
In general, you’ll be subject to underpayment penalties if your Form 1040 shows a balance due of $1000 or more.
However, there’s an exception to that rule if the amount you paid in toward the current year’s taxes is at least as much as the total tax liability you had last year.
If you’re counting on meeting that requirement through payroll tax deductions (including your spouse’s if you’re married filing jointly), then it’s absolutely critical to make sure the correct amount of taxes are being withheld from your paychecks.
The bad news is that you can’t tell that just by looking at your paystubs.
The good news is that there’s a free IRS calculator to help you do a paycheck checkup to figure this out!