I just finished updating my spreadsheet for the new year, which means copying all the new tax figures (tax brackets, contribution limits, etc), and I’m excited to see how close I was with my tax planning. I’m unfortunately expecting a sizeable refund this year because my employer did a weird overcorrection when I sent in an updated W-4, and I just gave up. I paid a fee last year because my bonus was significantly lower than expected, which really sucks because I only have 1-2 paychecks to fix my withholding since my bonus hits in Dec.
Anyway, I’m going to try fixing it yet again, so we’ll see if I can dial it in a bit this year.
Isn’t that against IRS regulations? If you have W2 income, you can’t make up for insufficient deferrals with a quarterly tax payment. You can do it for other taxable income (stock sale, side hustle, etc), but you can only send tax payments for that income (though you can pick the method).
Most companies do 22% (more if you have really high bonus income), which may be too high or too low, depending on your marginal bracket. My company seems to try to account for this with other withholdings, which makes it even more complicated to try to plan for since I also opportunistically do Roth conversions, so I messed it up.
Over half my income gets paid out in a variable annual bonus, I literally won’t know what it will be until almost a quarter of the way into a year, and the flat 22% withholding is indeed usually too low and would leave me subject to under withholding penalties many years. As far as I’ve read, anyone can make estimated quarterly payments. There’s definitely requirements about when you make the payment (eg needs to fall within some period of the quarter you receive the income) but I make sure to send the payment around when I receive the bonus. My withholding is sufficient otherwise to cover my non-bonus pay.
I just finished updating my spreadsheet for the new year, which means copying all the new tax figures (tax brackets, contribution limits, etc), and I’m excited to see how close I was with my tax planning. I’m unfortunately expecting a sizeable refund this year because my employer did a weird overcorrection when I sent in an updated W-4, and I just gave up. I paid a fee last year because my bonus was significantly lower than expected, which really sucks because I only have 1-2 paychecks to fix my withholding since my bonus hits in Dec.
Anyway, I’m going to try fixing it yet again, so we’ll see if I can dial it in a bit this year.
I’ve just made peace with doing an estimated quarterly tax payment at bonus time, it’s way easier to reason about than the other options.
Isn’t that against IRS regulations? If you have W2 income, you can’t make up for insufficient deferrals with a quarterly tax payment. You can do it for other taxable income (stock sale, side hustle, etc), but you can only send tax payments for that income (though you can pick the method).
Most companies do 22% (more if you have really high bonus income), which may be too high or too low, depending on your marginal bracket. My company seems to try to account for this with other withholdings, which makes it even more complicated to try to plan for since I also opportunistically do Roth conversions, so I messed it up.
Over half my income gets paid out in a variable annual bonus, I literally won’t know what it will be until almost a quarter of the way into a year, and the flat 22% withholding is indeed usually too low and would leave me subject to under withholding penalties many years. As far as I’ve read, anyone can make estimated quarterly payments. There’s definitely requirements about when you make the payment (eg needs to fall within some period of the quarter you receive the income) but I make sure to send the payment around when I receive the bonus. My withholding is sufficient otherwise to cover my non-bonus pay.