What is the penalty for not enough fed withholding on W-2 about?

Yes, this is an unfortunate little section of the Code you've just learned about. You need to have 1) 90% of the current year's tax paid in or 2) 100% of the prior year's tax paid in to avoid penalties. So, let's say that for 2005, your tax liability (not your refund amount, the actual tax liability) was $6,000 and in 2006, your liability is $10,000. In order to avoid a penalty, you would have needed to have had at least $6,000 in federal withholding (to cover 2005 liability) or $9,000 withholding (90% of this year's liability). Apparently, you didn't meet either of those qualifications. You might be able to reduce the penalty if you had a large windfall at the end of the year (large capital gain or something like that). The IRS will allow you to "annualize" your income to reduce the penalty. Personally, for a $35 penalty, I wouldn't go through the hassle of doing the Form 2210 (Underpayment Penalty).

The thing you need to watch out for now is avoiding penalties for 2007. I'm guessing that you must be using a tax prep program, so it would be worth your time to go through the planning section of it to make sure you don't end up underpaid again-it could get to be an expensive habit!

Tax Withholding Penalty

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RE:

What is the penalty for not enough fed withholding on W-2 about?

In filing my '06 return, I was penalized for not paying enough fed tax on my W-2. I have never seen this before. The penalty charge was $35.00. Apparently it is for not having enough Federal Tax with held during the year. Anyone heard of this before? I have never seen or heard of it before and...

Call Timmy "Tax Cheat" Geithner or Barack Hussein Obama. Just kidding. Did you change your W-9 form elections at any time this past year? You should have no penalty if you pay what is owed by 4/15/2010. I never mail my check until the last minute.

Yep, that's been around for as long as I've been doing taxes -- over 40 years now.

Currently if you owe more than $1,000 in tax you may have to pay a penalty. If you paid in 90% of your liability or 100% of LAST year's liability then it's waived.

I think it's a control issue. So that you would choose to have more taxes with held next year. And, they would have your money and not you.

But I think the advantage of that is that your employer matches the amount of money with held, so it's a double return on your tax investment.

No