[Bill14564]

Originally Posted by Haggar

Withholding doesn't trigger anything. An underpayment of required taxes triggers the underpayment penalty calculation. I prefer my clients use withholding - such as from their social security checks - rather than quarterly payments. Two reasons: 1. they sometimes forget their quarterly payments 2. Withholding is treated as paid in equally during the whole year even if the withholding is started mid year.

Clients sometimes project they will have less taxable income so they lower their quarterly estimates. But then they get a windfall - i.e. lottery winnings - and they'll be in a penalty situation. Simply increase or start withholding on income items that didn't have withholding.

Perhaps trigger was the wrong word. Still, money that is withheld is treated differently than estimated payments in the determination of underpayment penalties. The calculations are avoided when a certain percentage of taxes are withheld even if there was an underpayment. Those calculations cannot be avoided even if the same amount was submitted with estimated payments. That is what I meant by triggering safe harbor rules.

NOTE: Not a CPA, just someone who has worked through this in the past.