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This year, Santhosh, a single taxpayer, estimates that his tax liability will be $ 116500.Last year,...

This year, Santhosh, a single taxpayer, estimates that his tax liability will be $ 116500.Last year, his total tax liability was $ 20500.He estimates that his tax withholding from his employer will be $ 40500.a.Is Santhosh required to increase his withholding or make estimates tax payments this year to avoid the underpayment penalties?

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Answer #1

Santhosh can avoid the underpayment penalty if his withholdings and estimated tax payments equal or exceed one of the following 2 safe harbors:

1. 90% of his current tax liability [$116,500 x 90% = $104,850] or

2. 100% of his previous year tax liability [100% of $ 20,500 = $ 20,500 for Santhosh assuming his AGI was $150,000 or less last year]

As Santhosh's withholding of $40,500 exceeds $20,500 (safe harbor 2), he will not need to increase his withholding or make estimated payments this year to avoid the underpayment penalty.

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