How Do I Know I'm Having Enough Tax Withheld?

Although your tax return is not "due" until April 15th of the following year, you are generally required to prepay your tax during the year.

If you did not pay enough tax either through withholding or by making estimated tax payments, you will have an underpayment of estimated tax and you may have to pay a penalty. Generally, you will not have to pay a penalty for 2003 if any of the following situations applies.

  • The total of your withholding and estimated tax payments was at least as much as your 2002 tax (or 110% of your 2002 tax if your adjusted gross income was more than $150,000 — $75,000 if your 2003 filing status is married filing separately) and you paid all required estimated tax payments on time.
  • The tax balance due on your return is no more than 10% of your total 2003 tax, and you paid all required estimated tax payments on time.
  • Your total 2003 tax minus your withholding is less than $1,000.
  • You did not have a tax liability for 2002.
  • You did not have any withholding taxes and your current year tax less any household employment taxes is less than $1,000.

If you need to recompute your withholding, obtain a copy of Form W-4 from your employer. This form contains a worksheet that allows for most circumstances, and tells you what withholding status and how many "withholding allowances" to claim. Note that your status on Form W-4 could very well be different than your marital status, and the allowances different than the exemptions you are allowed to claim on your actual return. Form W-4 explains how this is done. Generally, if a couple is married filing jointly and both work, the number of allowances they claim in total will be less than they claim on the return itself.

If it is not possible for you to adjust your withholding to pay in enough tax, you will need to make quarterly estimated tax payments for any shortfall. (See next question)

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