The costs of underpaying federal income taxes

You need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year.

There are two ways to pay tax:

•  Withholding from your pay, your pension or certain government payments, such as Social Security.
•  Making quarterly estimated tax payments during the year.

 To avoid paying a penalty for underpaying federal income taxes a taxpayer needs to have paid by the end of the tax year (12/31/22 for employees or 1/17/23 for those making estimated payments) 90% of what they owe. 

Check your withholding or quarterly estimated taxes (for retirees or self-employed). 

Check your withholding often and adjust it when your situation changes. To do this fill out a new Form W-4 and give it to your employer. The Tax Withholding Estimator is a helpful tool.

Due to inflation the interest on the penalty for underpayment of taxes is currently 6%, by January 1, 2023 it will rise to 7%, much higher than the 4% at the beginning of 2022. 

Charitable deductions

There is no $300 or $600 donation deduction for non-itemizers (as applied in 2020 and 2021).

Standard Deduction

For 2022, the standard deduction for married couples filing jointly is $25,900 and $12,950 for single filers. These amounts will increase in 2023 to $27,700 and $13,850. Filers age 65 and older get an additional deduction of $1,400 in 2022 and $1,500 in 2023.