Avoiding Self employment tax penalty

SE tax isn't segregated for estimated tax purposes. Rather, all the taxes reported and paid on the 1040 are lumped together. If your 2011 total tax was zero you are not required to make any 2012 estimated tax payments. See IRS Publication 505.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

In addition, if your 2011 total tax was greater than or equal to zero, then the penalty/interest is based on the smaller of this amount or 90% of $1000. If you are a farmer/fisherman, then the 90% is reduced. So in other words, the penalty (if any) is going to be small. In addition, the penalty is based on just the 4th quarter missed payment (which is due 1/15/2013) and if you pay the tax bill on 4/15 then that's just 3 months of interest; but the catch is you have to fill out the long form 2210 and your tax preparer might charge you more for this.

"In addition, the penalty is based on just the 4th quarter missed payment (which is due 1/15/2013)"

I do not believe this is correct, or I do not fully understand what you are saying here.

If you do the long form 2210, the interest is based on how late each payment was made compared to when it was due. For the first 3 quarters, $0 was due. For the 4th quarter, some amount was (maybe) due, so the interest would be on that amount from 1/15/2013 to whenever you paid (e.g. 4/15/2013).

Seth

I did receive unemployment benefits in the first 1/2 of 2012. I have enough deductions and exemptions that I will owe no federal income tax, just payroll taxes. Since the income subject to payroll taxes was earned in the 4th quarter, I believe I can avoid any penalty (if I make an estimated payment by 1/15/2013). Is schedule AI what I would use? It doesn't seem to distinguish between the type of income (income subject to payroll taxes vs income not subject to payroll taxes).

I guess what I am asking is if I pay by 1/15/2013 an amount equal to my 2011 tax, will I have to pay a penalty because I didn't make quarterly payments?

tax, will I have to pay a penalty because I didn't make quarterly payments?

Probably not, but you will have to file Form 2210 with Schedule AI to avoid it.

Phil Marti VITA/TCE Volunteer Clarksburg, MD