Penalty-Proof Your Tax Return
Adjust your tax withholding now to boost your take-home pay or to avoid underpayment penalties when you file your 2013 tax return.

When you file your tax return each year, the amount of tax withheld from your paycheck or submitted through estimated quarterly tax payments ideally should match the amount of tax you owe. In reality, that seldom happens.
Most Americans are addicted to tax refunds. This year, the average refund may break $3,000 -- that’s $250 per month. More than 75% of U.S. taxpayers give Uncle Sam an interest-free loan year after year. Doesn’t it make more sense to get your money when you earn it rather than waiting a year for a refund? Many of the remaining taxpayers end up owing money, and some have to fork over an extra 10% penalty for having too little tax withheld throughout the year.
Both situations are easy to remedy, but you have to act before the end of the year. Just file a revised Form W-4 with your employer. The more “allowances” you claim on the W-4, the less tax will be withheld; the fewer you claim, the more tax will be withheld. You can also ask your employer to withhold a flat amount from your paycheck.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you regularly get a refund, you’ve already banked most of it; you’ll still get a refund next spring. But you can stop the leakage from your last few paychecks of the year by adjusting your W-4 now. Worksheets that come with the W-4 can help you figure out the proper adjustment; you could also struggle through the IRS’s online withholding calculator.
Answer three simple questions (you’ll find the answers on your 2012 tax return) and we'll estimate how many additional allowances you deserve -- and even show you how much your take-home pay will rise starting next payday, if you claim the allowances on a new W-4. (However, this shortcut won’t be much help if your tax situation has changed since last year because, for example, you got married, have a new baby or switched jobs.)In that case, you might want to give the IRS withholding calculator a whirl.
Alternatively, if you expect that you’ll owe money when you file your 2013 tax return next spring, you can avoid an underpayment penalty by boosting your withholding now. You needn’t pay every penny of the tax you expect to owe. As long as you prepay 90% of this year’s tax bill, you’re off the hook for the penalty. Or you can escape its reach, in most cases, by prepaying 100% of last year’s tax liability. However, note that if your 2010 adjusted gross income topped $150,000, you’ll have to prepay 110% of last year’s tax liability to avoid a penalty. Taking these steps to boost your withholding at year-end will shield you from an underpayment penalty on your 2011 return no matter how much you actually owe when you file your return.
If you have both wage and consulting income and expect to owe money on your tax return, you’ll do better by boosting the taxes withheld from your last few paychecks rather than trying to make up the shortfall with your final estimated quarterly payment due January 15, 2014.
Taxes that are withheld are treated as if they were spread out evenly throughout the year, so that approach sidesteps an underpayment penalty; the estimated-tax-payment approach does not.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.
-
TSA Expands PreCheck Access for Military Members, Families and Veterans
Enhanced "Serve with Honor, Travel with Ease" initiative lowers barriers to expedited screening for service members and their loved ones.
-
What to Know About New Medicaid Cuts: Is Your Local Hospital Closing Soon?
Tax Policy Trump’s ‘One Big Beautiful Bill’ is now law, and rural hospitals across the U.S. are on the chopping block.
-
Ask the Editor, July 4: Tax Questions on Inherited IRAs
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the rules on inheriting IRAs.
-
Ten Cheapest Places to Live in Virginia
Property Taxes The Commonwealth of Virginia has some cheap places to live. Here are a few if you hate paying property taxes.
-
IRS Watchdog: Three Problems the IRS Must Address in 2025
IRS The tax season is over, but new changes to the IRS can pose risks to your taxpayer experience.
-
Ask the Editor, June 27: Tax Questions on Disaster Losses, IRAs
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on paper checks, hurricane losses, IRAs and timeshares.
-
2025 SALT Cap Could Hurt Top 'Hidden Home Cost'
Tax Deductions The GOP tax bill could make hidden homeowner costs worse for you. Here’s how.
-
Retire in the Bahamas With These Three Tax Benefits
Retirement Taxes Retirement in the Bahamas may be worth considering for high-net-worth individuals who hate paying taxes on income and capital gains.
-
Ask the Editor, June 20: Questions on Tax Deductions and IRAs
Ask the Editor In our latest Ask the Editor round-up, Joy Taylor, The Kiplinger Tax Letter Editor, answers four questions on deductions, tax proposals and IRAs.
-
2025 Virginia Tax Rebate Checks Coming Soon? What to Know Now
Tax Rebates Given a historic 2025 gubernatorial race, tax policy will remain a key issue for Virginians in the months ahead.