Question

This year Lloyd, a single taxpayer, estimates that his tax liability will be $11,050. Last year, his total tax liability was $15,700. He estimates that his tax withholding from his employer will be $8,465.

How much does Llyod needs to increase his withholding by (for the year) in order to avoid the underpayment penalty

Answer 1

Lloyd needs to increase his withholding by $2,585 for the year in order to avoid the underpayment penalty.

Step-by-step explanation:

In order to avoid the underpayment penalty, Lloyd needs to increase his withholding by the amount of his estimated tax liability minus his estimated tax withholding from his employer. Therefore, to calculate how much Lloyd needs to increase his withholding, we subtract his estimated tax withholding from his estimated tax liability:

(Tax Liability - Tax Withholding) = Underpayment Penalty
($11,050 - $8,465) = $2,585

So, Lloyd needs to increase his withholding by $2,585 for the year in order to avoid the underpayment penalty.