As for many others, my 2009 income was drastically reduced compared to
2008. As a consequence my tax is very low. The estimated tax paid for 2009 was significantly greater than my tax liability.I remember something about a "safe harbor" level of estimated tax payment (for 2010). If I pay 110% of my 2009 tax for 2010 estimated tax, I will be off the hook even if my 2010 income is (hopefully) significantly in excess of my 2009 income.
Do I remember correctly? Am I just wishful thinker?
Bill
It's right and partially wishful thinking.
For federal you're right. If your 2010 AGI is low enough the prior year safe harbor is just 100% of last year's income.
But here's where it is wishful. For California, if your 2009 or 2010 AGI is above $1,000,000, you cannot use prior year safe harbor. I think this law was introduced for 2009, and it in effect for 2010 as well. For New York, they still allow prior year safe harbor, but you have to recompute your prior year tax using the new rates that went into effect in 2009 (they added two new rates 7.85% and 8.97%).
It's 100% of last year's tax if your AGI last year was less than $150,000, otherwise it's 110%, otherwise you remembered right..
If your state has an income tax make sure you check to see what it's requirement is. For example, MD is 110% of last year's tax regardless of last year's income.
Phil Marti VITA/TCE Volunteer
A few more things:
(F1) If you're a farmer or fisherman, you only have to pay the smaller of 100% of last year's income or 66 2/3% of this year's income -- for the rest of us, the rule is the smaller of 100%/110% of last year's income or 90% of this year's income. So can I grow a few tomatoes and call myself a farmer to take advantage of this sweet rule? The instructions for 2210-F say that 2/3 of your gross income must come from farming or fishing.
(F2) Also, if you don't make estimated payments and file and pay your tax by March/1, then there is no underpayment penalty. This rule is only for farmers and fisherman.
(Q1) In general, there is a new rule for 2009. If you have a qualified small business, you have to pay the smaller of 90% of last year's income or 90% of this year's income. Not sure if this rule is there in 2010.
Qualified individuals with small businesses.
(D1) There is a waiver of penalties for federal disaster areas. If a disaster happens in June, the March/15 or April/15 estimated payment due date is not postponed, but the June/15 and later ones may be. It is not necessary to file form 2210.
(D2) Even if it's not a federal disaster, you may still have a waiver of penalties.
Yet another form of marriage penalty. Limit is 150k for single and married filers.
It's 75k for married filing separately. Not sure why MFS always get penalized.
Furthermore, California has messed with how much is due at each payment, to accelerate more money received earlier. It's no longer 25% at each due date.
Because the Democratic Congress would rather pay for your lifetime incarceration after you KILL your spouse as an alternative to divorce! ;-)
I'm awaiting a clever but snide remark from our moderator on this one....
True. But it used to be that you had to pay 22.5% each quarter (not
25%). Now it is 27, 27, 18, 18. Still adds up to 90%.
Seems consistent with the pro-shack-up provisions of §121.
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