2 Estim. Tax Payment Questions, Please.

I prefer to think of whether I meet the "safe harbor" requirements, which can be framed in positive terms:

1. Owe less than K, or
2. Withholding is at least 90% of 2011 tax or 100% of 2010 tax, whichever is smaller.

You haven't told us how much tax you expect to owe for 2011. Let's assume that your tax for 2011 is $20K.

1 = $5K 2a = $18K 2b = $12K 2 = Smaller of 2a and 2b = $12K

So criteria #1 applies, since you'll owe more than $1K.

Your withholding will NOT be less than criteria #2.

Since you don't meet both criteria, you don't have to max estimated tax payments.

Meant to include owing $5K for 2011. If a person does end up required to make payments, does sending the payment as I described (now instead of waiting to file my return) help to lower a penalty?

Do the IRS Pub 505 and the answer lady appear to be in conflict to you?

Thank you for your reply!

Yes, that's what "required to make estimated payments" means: if you don't, you'll owe a penalty.

If you explained your situation, where you've already withheld more than your 2010 tax, she may have simply quoted the one condition relevant to you. The other criteria don't matter, you're already safe.

I'm not sure about (1). According to form 2210 at

if your total tax is lessthan 1K (line 4), or if the remaining tax you owe excluding estimatedpayments you made is less than 1k (line 6) then there is no penalty.In other words, if you had withholding and made $200 of estimatedpayments, and owed $900 at the end of the year, the tax owed if youhad not made the estimated payments would be $1,100 and a penaltywould be due if your didn't meet the prior-year safe harbor (line 8)or current year safe harbor (line 5). If the person is a farmer or fisherman the prior-year safe harbor is

66 2/3%.

The person didn't ask about state income tax, but that matters too.

Seems to me under the scenario you posit that:

Line 4: $1100 Line 6: $ 200 Line 7: $ 900

Directions say if Line 7 less than $1,000, stop; you do not owe a penalty. Do not file Form 2210

 Do not file Form 2210

Actually I mean

Line 4 (total tax) = 2000 Tax paid through withholding and estimated payments = 900+200 = 1100 Line 6 (withholding) = 900 Line 7 = Line4 - Line6 = 1100

The total tax you owe is $2000 - $1100 = $900, which is total tax due minus total tax payments. The earlier statement said you don't have a penalty if you owe less than $1000. But line 7 is $1100, or what you would owe had you not made estimated payments. In this case a penalty may exist.

Line 5 (current year safe harbor) = 0.9*2000 = 1800 Line 8 (prior year safe harbor) = no idea, let's suppose it is $3000 Line 9 = smaller of Line 5 and Line 8 = 1800

Line 10 = Line 9 = 1800 Line 11 = Line 6 = 900 Line 12 = estimated payments = 200 Line 13 = total taxes paid this year = 1100 Line 14 = Line10 - Line13 = 700 Line 15 = Multiply line 14 by .02383 = 16.681 Line 16 = reduction of penalty if you pay before 4/15

Thus there is a penalty of $16.68 in this case.

I agree with your statement that estimated tax payments are not taken into account in computing this number, and that a penalty may be due.

What I've seen done in similar situations is have the last pay period(s) withholding adjusted. Of course, one cannot do this after the end of the tax year.

I think I confused the issues unnecessarily and could have been more helpful by being straightforward. I've worked up specific numbers. Do I dare ask that you take another look to see if Estimated Tax Payments are required? Thank you SO MUCH.

My situation: Married Filing Jointly, 2 Exemptions

2010 AGI = 118,351 2010 Deductions = 32,727 2010 Total Tax = 11,944 2010 Withheld = 14,455 2010 Refund = 2,511 2011 AGI = 135,762 2011 Deductions = 30,000 2011 Total Tax = 16,841 2011 Withheld = 12,916 2011 Tax Bill = 3,925

Gratefully, Ellen Hall.

Most of the information you supplied is irrelevant. There's nothing about AGI, deductions, or refunds in the rules for withholding. All that matters is last year's total tax, this year's total tax, and this year's withholding and estimated payments.

Why don't you just fill in Form 2210 and see what it says your penalty is?

OK, this turns out to be really easy.

Since your 2011 withholding is greater than 2010 total tax, you're totally safe. No penalties. Just make sure you have $4K in the bank in April.

I can't tell you how much I appreciate your help. When I worked through the numbers I came to a conclusion close to yours but was less than confident. Thank you for simplifying the concept for me in a few words!!

Why can't the IRS just say, "Since your 2011 withholding is greater than

2010 total tax, you're totally safe"??!!

Now I can relax. Maybe I'll even earn a few pennies on the $4K before April. Thank you!

They do. You quoted it in your original post. Except they describe it the other way around, when you have to file estimated taxes to AVOID the penalty. So they say:

If your 2011 withholding is less than your 2010 total tax or 90% of your

2011 total tax, whichever is lower, and you owe at least $1000, you have to pay estimated taxes.

The only relevant lines are the 4 above. As your 2010 AGI < 150k and your filing status is not MFS, your 2011 withholding has to be just

100% of last year's total tax. Your 2011 withheld is, I imagine, a projection of what you will have withheld till your Dec/31 paycheck. As you don't need to withhold so much, you can change your W-4 and withhold less taxes. It seems claiming 16 more exemptions will do. Each exemption reduces your taxable income by $3000, looks like you're in the 28% tax bracket, so you save $840 per year or $70 per month. You need to pay about $1000 less in just one month, so that's 1000/70.2 exemptions for the month of December only. Just be sure to have all the money that is due on 4/15/2012. The whole point of this exercise is to earn interest on this 4k, but with interests rate so low, at 1% that is only $40 per year. Also I'm of the opinion that investing in US bonds, munis are risky as they may default, so I'm not sure there's much point to this exercise.