Federal And State Estimated Taxes Due

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Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.

Uncle Sam wants his money as you earn it, or shortly thereafter. This means that you cannot pay all of your income tax when you file your return. Instead, you must pay your taxes by withholding from your paycheck, send in quarterly estimated tax payments to the IRS, or both. Estimated tax payments are required if your income tax withholding will not fully cover next year’s tax liability. This applies not only to self-employed people, landlords, and investors, but also if you cashed in savings bonds, took a pension loan, increased your bank interest income, a prize, alimony, or added to your taxable income in any other material way. To put it another way, if your income isn’t subject to withholding taxes, then estimated payments are the way to go.

The penalty you are charged is based on (1) the amount you underpay, (2) when you pay the amount due, and (3) the rate of interest the IRS charges you for the use of


the Government’s money. In other words, you are assessed for not paying the proper taxes by the ‘quarterly’ due date. (Catching-up in the fourth quarter does not eliminate the underpayment for quarters one, two, or three.)

Here’s the schedule for payment:




#4: (See Note)





Estimated tax due For income received from
April 18   Jan. 1 through March 31
June 15   April 1 through May 31
Sept. 15   June 1 through Aug. 31
Jan. 17 (next tax year)   Sept. 1 through Dec. 31

You can avoid penalties for underpaying your Federal and State taxes by reviewing your withholding and current estimated tax payments. Call if you think you might be affected.

(Note: Although your State estimate is due at the same time as the Federal, it is generally suggested that your January payment be paid by December 31, about two weeks early. This will allow you to take a federal tax deduction in the current year instead of waiting twelve months.)

Easy Button


Pay Your Estimated Taxes Online

: Federal (EFTPS), NY State, New Jersey. It’s EASY, it’s ACCURATE, and it’s THE WAY TO GO! Why not SIGN UP NOW. (Some insist that it’s so easy, a caveman can do it.) Your check cannot be misplaced, and you’ll get an instant receipt of payment.

Loophole #1

: Withholding is considered made evenly during the year. Estimated tax payments are credited to a quarter according to when they are paid. So, if you can increase your December withholding to cover your annual tax liability, you can avoid the penalty.

No penalty will be imposed if

: you qualify for one of these three “safe-harbor” exceptions.

1. You pay at least 100 percent of the prior year’s tax liability (110 percent if your AGI for the prior year exceeded $150,000). For example, if you receive a regular salary, all you have to do is to adjust your withholding payments for the year to equal 100 percent (or 110 percent) of the prior year’s tax liability.

2. You pay at least 90 percent of the current year’s tax liability. This requires you to keep close track of your payments for the year.

3. You pay at least 90 percent of the current year’s tax liability on your “annualized income.” This method works best for self-employed individuals and other taxpayers who receive most of their income in spurts or on a seasonal basis.

Loophole #2

: Instead of paying your estimates quarterly, pay them monthly. You may find that the payments will be more manageable, and give you less stress. You can set up monthly Federal payments a year in advance with EFTPS!

Loophole #3

: If you missed estimated tax payment deadlines, you can use withholding tax from your IRA to avoid penalties. How? At year-end, take an IRA distribution for the amount of your estimated tax, and have that same amount withheld for taxes. Then, within 60 days, repay your IRA. For example, if you owe estimated taxes of $1,000, request to have $1,000 withheld for taxes. By doing this, you will have met your quarterly payment requirements.

Questions? Call the tax office, or for some really exciting reading, see IRS Publication 505 and form 2011 Form 104-ES.

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.