Maybe you had a higher income in only one of several years. That may have rotated by a (single) substantial arrears for previous years, or maybe you are moonlighting as a freelancer and had a good year. It may be that because of your extra income in Box 1 you must settle at a higher rate. Usually, this rate to 42% or 52%. In the case of a sabbatical, severance, entrepreneurship, it might be to your advantage to use income averaging.
Spread high income
To absorb the fluctuations in your income, the IRS has determined that you should consider funds over the past three years. Through averaging, we can spread a single non-representative year of high income over a period of 3 years. Often this is useful for a severance or for a hefty profit distribution.
Averaging for starters
Averaging also pays for new labor. After completing their school. You are responsible for 42% or 52%, while having had a much lower income in previous years. You may therefore start saving considerable money resources.
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