![Problem 8-77 (LO 8-5) [The following information applies to the questions displayed below] This year Lloyd, a single taxpayer](http://img.homeworklib.com/questions/2bf66d70-73d6-11ea-b3ce-a9139a99ad94.png?x-oss-process=image/resize,w_560)
Homework Answers
Answer -
As per given information
Lloyd current year estimated tax liability = $11050
Withholding from employer = $8465
Last year total tax liability = $15700
a. Answer -
Taxpayers can avoid an underpayment penalty if their withholding and estimated tax payments equal or exceed one of the following two safe harbors :
1. 90% of their estimated current tax liability, i.e. 90% of $11050
= 11050 * 0.90
= $9945
OR
2. 100% of their last year total tax liability (110% for individual with AGI greater than $150000) (Assuming Lloyd's AGI was $150000 or less).
= 100% of $15700
= $15700
The lower of the above two should have been paid
Here,
As Lloyd has already paid withholding tax of $8465, he needs to increase his withholding by another $1480 ($9945 - $8465) to avoid underpayment penalty or makes four quarterly estimated payments of $370 each, he will avoid the underpayment penalty
b. Answer -
| Dates | Actual Withholding (1) | Required Withholding (2) | Over (Under) Withheld (1) - (2) | Penalty per Quarter (8%) |
| April 15th | $2116.25 | $2486.25 | $(370) | $7.40 |
| June 15th | $4232.50 | $4972.50 | $(740) | $14.80 |
| September 15th | $6348.75 | $7458.75 | $(1110) | $22.20 |
| January 15th | $8465.00 | $9945.00 | $(1480) | $29.60 |
| Total | $74.00 |
Note : The interest rate is determined quarterly and is the federal short-term rate (5%) plus 3%, i.e. 8% penalty per quarter.
Calculation :
(1) Actual Withholding
April 15th = $8465 * 1/4 = $2116.25
June 15th = $8465 * 2/4 = $4232.50
September 15th = $8465 * 3/4 = $6348.75
January 15th = $8465 * 4/4 = $8465
(2) Required Withholding
April 15th = $11050 * 0.90 * 1/4 = $2486.25
June 15th = $11050 * 0.90 * 2/4 = $4972.50
September 15th = $11050 * 0.90 * 3/4 = $7458.75
January 15th = $11050 * 0.90 * 4/4 = $9945
(3) Penalty per Quarter
April 15th = $370 * 0.08 * 1/4 = $7.40
June 15th = $740 * 0.08 * 1/4 = $14.80
September 15th = $1110 * 0.08 * 1/4 = $22.20
January 15th = $1480 * 0.08 * 1/4 = $29.60
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