Biglaw senior associate - I had an underpayment penalty last year. With the big bonus coming end of the month this year, what should I do? I feel I’m going to under pay again. I’m a w2 employee

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I have underpaid every year but haven’t gotten penalized, because you’re exempt from penalty if you withheld at least as much as you paid in taxes the prior year. That’s easy to satisfy with the annual salary increases.

If you’re worried about it, though, do the IRS calculator now and you can make a direct payment to the IRS by end of year to cover any shortage.

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If you have adp or another app for pay, look at your YTD. See what you have earned versus paid in. See if you might be there already—even without the bonus. Then, look at it once bonus paid. Then, you can make payments with IRS—look at their website. Is it worth it to you to have the cash money now for the cost of the penalty and pay it later?

What are your withholdings? Set them to zero and "single" filing (even if married) - or have you already done this and still underpaying?

IRS withholding calculator. I run mine a few times a year just to make sure I’m good.

Underpayment in taxes? Cant you just pay what you owe when you file your 2020 taxes in early 2021?

Because you’re supposed to be withholding/paying throughout the year, under the tax code/regs there’s a penalty if you pay less than X% of your total tax owed during the calendar year (I don’t remember the exact number but the idea is you shouldn’t owe a crazy amount when you file in April). But as someone noted above, there are exemptions to the general rule—if you got a raise or had a windfall year for example, they’re not going to impose the penalty.

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