Question

This year Lloyd, a single taxpayer, estimates that his tax liability will be $11,950. Last year, his total tax liability was $16,300. He estimates that his tax withholding from his employer will be $9,035.

a. How much does Lloyd need to increase his withholding by (for the year), in order to avoid the underpayment penalty?

b. Zach is 29 years old and his AGI is $10,100.

c. Zach is 29 years old and his AGI is $18,600.

d. Zach is 24 years old and his AGI is $6,200.

Answer 1

Estimated tax liability = $11,950

Last year's liability = $16,300

Estimated tax withholding from employer = $9,035

The underpayment penalty can be avoided if the taxpayers owe less than $1,000 after subtracting their withholding credits or if they paid withholding and estimated tax of atleast 90% of the tax for the current year or 100% of the tax shown on the return for the prior year whichever is smaller.

Currrently = tax to be paid after subtracting the withholding amount is = $11,950 - 9,035 = $2,915

Therefore, Lloyd needs to increase his withholding by $1,916, so that he will owe less than $1,000 towards tax and thus he can avoid the underpayment penalty.