I was employed by a company for the first nine months of this year. Then this month I became an independent contractor. I'm wondering if I'm required to make an estimated tax payment on January 15th for the last quarter of this year. The rules are a little vague about what it means if you start contracting in the middle of the year, and whether or not previous employment within the same year is relevant.
Thanks.
Yes, you are required to do this. The estimated payment 1/15/2012 covers the period from 9/1/2011 to 12/31/2011.
The bad news is that you'll have to fill out the long form 2210, which means that you have to calculate your income and tax paid for each quarter. If you only have W-2 income then it's easy, but if you have interest received, dividends received, stock trades, mortgage payments, etc then it gets complicated. This is because you receive a
1099-INT, 1099-DIV, 1099-B, 1098, etc for the whole year whereas you want these forms for each quarter.See if you can take advantage of prior year safe harbor. Generally, if your W-2 tax withheld is less than or equal to 110% of last year's total tax, then you have no penalty. Say your 2010 total tax was $8000. If for the first 9th months you withheld $8,800 or more then you have no penalty for 2011 even though your 2011 may be much more, say like $20,000. BTW, the number 110% may be 100% if your income is low enough.
Also, say you only withheld $8,700 on your W-2. You were $100 short. The penalty/interest is based only on this $100, which will be a small number. If you file your 2011 taxes early -- say by 2/15 if you can
-- then this penalty will be reduced.
Also ask about state taxes.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.