question about paying estimated taxes

Not only should he end up not owing any taxes, he may well qualify for Earned Income Credit (EIC), depending on a few other factors. So no, there is no reason to make estimated payments based on what you've stated.

-Mark Bole

Sponds like he is being treated as self-employed by his employer. In that case there might be Social Security and Medicare taxes that have to be paid.

George Anthony

A correction here. It's not important now, but hopefully someday they'll be in better financial shape, and it could matter. Social Security disability (SSDI) benefits are taxed the same as Social Security retirement benefits. (At their current income level, none of it would be taxed.) SSI is tax-exempt.

As someone already mentioned, it sounds like he's being treated as an independent contractor. This may or may not be correct, but if he is an IC, he's going to owe self-employment tax even though there won't be any income tax due. Even if he's an employee he's going to owe the employee's portion of Social Security/Medicare tax.

Someone also mentioned the Earned Income Credit. Without knowing their ages and whether they have children, we don't know whether they'd qualify or not. If they are childless, even if they qualify it won't be enough to pay the self-employment tax.

I suggest he find a low-income tax clinic in his area and seek assistance. If social service agencies can't direct him to one, try the IRS.

-------------- Phil Marti, VITA Volunteer Clarksburg, MD

Let me try again, subsequent to other responders clarifying some bad assumptions I made -- what is the reason?

-Mark Bole

Income tax withholding on a married employee with $500 monthly pay is zero, so that is another assumption we can't make without more information from the OP.

-Mark Bole

Thank you for the clarification. The question for the OP would be, is a Form 1099-SSA received at the end of the tax year? For SSDI, it would be, for SSI, no.

He won't owe any SE tax if his net profit from self-employment was not much more than $400, but then he will need to have appropriate records to claim his business expense deductions, such as mileage.

In short, everything, from the taxes themselves to preparation of the return, is going to much more burdensome if he is not an employee.

If his employer is not taking out Social Security/Medicare, I'd recommend reporting it to IRS (or SSA, whoever) now, or else finding another job.

That's why I said "depending on a few other factors" . If self-employed, even with no children, at their income level, EIC will pay at least half the SE tax (which makes sense, since as I've been told EIC was designed to cover the employee's half).

By all means, but aren't many of them closed this time of year? If the OP will provide some more information, an answer can be provided here, too!

-Mark Bole

We no doubt have an embarrassment of riches here in the DC area, with law schools everywhere, prominent law firms itching to notch their pro bono belts, and lots of savvy on getting government grants. In fact, I'm scheduled to work at an off-season clinic a week from Saturday.

-------------- Phil Marti, VITA Volunteer Clarksburg, MD

Assuming... ( yes, I KNOW; dangerous!) that his yearly income of $6000 is also net profit (no allowable expenses), the schedule CEZ form is used and the SE tax will be $848.

Again, assuming he files jointly with wife and qualifies for Earned income credit, that credit would be $426 in2008 (perhaps slightly higher in 2009) and balance due woule be $ 422 at year's end.

Thus no estimated payments are required, and there will be no underpayment penalty.

ChEAr$, Harlan Lunsford, EA n LA

There are no penalties; just interest. And the interest isn't any more unfair then withholding. So it is 6 of one, half a dozen of the other.

OK. Clearly I didn't give you enough information.

He is treated as self employed. Same as Independent Contractor, right? They have no children. They are in their early 40s.

Is your son in law an employee that will get a w2 at the end of the year? Or will he be treated as an independent contractor and get a 1099misc at the end of the year?

I would approach each situation quite differently.

___________________________________

-----> real address on hobokeni or hobokenx

That gives us enough to do some rough calculations. They won't owe any income tax for 2009. His self-employment tax will be roughly $1,000. After applying the Earned Income Credit and the Making Work Pay Credit they'll owe roughly $250. So, the answer to your original question is no, they don't need to worry about estimated tax payments.

Note the repeated use of variations on "rough." This is an approximation, but it's not a SWAG. If anyone wants to slog through more precise calculations, have at it.

-------------- Phil Marti, VITA Volunteer Clarksburg, MD

Comparative levels of fairness are completely subjective. The interest the government charges, while not usurious, is still much higher than anything that can be earned in a regular bank savings or money market account, even if the the taxpayers have the discipline to hold the money there during the year, which someone "just making do" most likely does not.

I'd say it's more like three of one, nine of the other. ;-)

-Mark Bole