Having a tax bill of more than $1000 doesn't mean you owe any penalties. Owing less than $1000 is a sufficient but not necessary condition to avoid penalties.
You can owe a ton of money and still owe nothing in penalties if any of the following apply:
- You withheld/made payments of at least 100% of last year's tax liability (110% if your AGI last year was at least $150k). This one involves no guesswork on your part during the year about how much you should withhold/pay
- The amount owed is less than 10% of your total tax liability for this year, and you made your estimated tax payment on time
That was me this year, I owed $2,732, but no penalty because I paid 100% of last years burden. I raised my quarterly payment by $2,732/ 4 = $683, so I'll automatically pay 100% of this year, next year.
That was me for the 2013 tax year! Owed $5,338 - no penalty. I was a full-time student for half of 2012 so my income more than doubled in 2013. I met the 100% threshold of the previous year's taxes early in 2013. I then minimized my withholdings for the largest take home pay possible. That in turn enabled me to pay off my student loan at 6.8% int by March 2014.
Looking back I played it very close to the edge. I submitted on April 15 around lunch - my 4/15 paycheck's direct deposit was already in my available balance (they generally show up just after midnight). Otherwise I would have been overdrawn. I guess had something gone wrong I'm fortunate enough that I could have gotten an emergency instant transfer from mom and dad.
For 2014 tax year, I owed $364.
For 2015 tax year, I got $54 - zeroing in on that sweet spot.
