What is the minimum amount of estimated tax that I am required to pay without incurring any penalty or interest charges?
In general, you may owe a penalty for 2000 if the total of your withholding and estimated tax payments did not equal at least the smaller of:
- 90% of your 2000 tax, or
- 100% of your 1999 tax. (Your 1999 tax return must cover a 12-month period.)
Your 2000 tax, for this purpose, is your Total tax for 2000. There are special rules for farmers and fishermen, and for certain higher income taxpayers.
Generally, you do not have to pay an underpayment penalty if either of the following conditions apply:
- Your total tax is less than $1,000, or
- You had no tax liability last year.
Farmers and fishermen. If at least two-thirds of your gross income for 1999 or 2000 is from farming or fishing, substitute 66 2 /3% for 90% in (1) above.
Higher income taxpayers. If less than two-thirds of your gross income for 1999 and 2000 is from farming or fishing and your adjusted gross income (AGI) for 1999 was more than $150,000 ($75,000 if your filing status is married filing a separate return in 2000), substitute 105% for 100% in (2) above.
References:
What is meant by "no tax liability" in the exceptions to the estimated tax penalty?
The exception to the estimated tax penalty for having "no tax liability last year" means that your total tax for the prior year is zero or you did not need to file an income tax return. Your total tax is found on page 2, line 53 of Form 1040, U.S. Individual Income Tax Return, above the calculation of the amount of your refund. If you got a refund of only part of your withholding, then you had a tax liability for the prior year.
For additional information on this topic refer to Form 1040-ES, Estimated Tax for Individuals, and Publication 505, Tax Withholding and Estimated Tax.
References:
I was a student in 1999 and had no income. In 2000, I started working and did not have enough tax withheld. Will I owe a penalty because I did not make estimated tax payments?
You will not have to pay a penalty for 2000 if you did not owe tax for 1999. For additional information on the penalty for underpayment of estimated tax, refer to Tax Topic 306, Penalty for Underpayment of Estimated Tax. For information on how to increase the amount of tax withheld by your employer, refer to Tax Topic 753, Form W-4, Employee's Withholding Allowance Certificate. For information on estimated tax requirements, refer to Tax Topic 355, Estimated Tax or Publication 505, Tax Withholding and Estimated Tax.
References:
I was late mailing my estimated tax payment. To minimize the penalty, how do I compute the interest rate and late payment charges in order to send an additional check to the IRS as soon as possible?
The failure to pay estimated tax penalty is based upon the number of days that the payment is late and the current interest rate. Therefore, we cannot give a percentage that applies for all cases. To compute the amount of the estimated tax penalty you will need to refer to Publication 505, Tax Withholding and Estimated Tax and Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts for directions on computing the penalty. Since the computations can get rather complicated, you may want to just send in the estimated tax payment and wait for a bill from us for the interest and penalty.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts
Why should I owe a penalty for failing to pay estimated taxes when I received a refund for the prior year?
Since the estimated tax penalty is based upon your prior or current year income tax liability (not withholding or estimated tax payments), you may be subject to the penalty even if you had a refund for your prior year return. This may occur if your current year withholding or estimated tax payments are less than last year and your income remains the same.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts
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