Missed some tax payments
March 14, 2011 7:18 AM Subscribe
Missed some "estimated tax" payments (US federal). What can I expect? Details inside.
I'm a graduate student at an American university and I'm a US citizen. I receive fellowship funding that pays for my tuition and a stipend.
I did not do any "work-for-pay" last year, and thus nothing got deducted from my paycheck. Apparently I was supposed to fill out Form 1040-ES (estimated taxes) and submit the calculated payment at the end of each quarter last year (it would have been only the 3rd and 4th quarters since I started in September), but either nobody told me I had to or I completely forgot about it.
I obviously want to rectify this. How do I go about doing so? Should I just submit the form, voucher, and payment for each quarter and wait for the IRS to assess a penalty? Does it matter whether I do this before I file my return this year? Please keep in mind that I have never done my own taxes before — I would appreciate everything being laid out in simple terms.
Thanks in advance.
I'm a graduate student at an American university and I'm a US citizen. I receive fellowship funding that pays for my tuition and a stipend.
I did not do any "work-for-pay" last year, and thus nothing got deducted from my paycheck. Apparently I was supposed to fill out Form 1040-ES (estimated taxes) and submit the calculated payment at the end of each quarter last year (it would have been only the 3rd and 4th quarters since I started in September), but either nobody told me I had to or I completely forgot about it.
I obviously want to rectify this. How do I go about doing so? Should I just submit the form, voucher, and payment for each quarter and wait for the IRS to assess a penalty? Does it matter whether I do this before I file my return this year? Please keep in mind that I have never done my own taxes before — I would appreciate everything being laid out in simple terms.
Thanks in advance.
PS: I think there was a penalty amount too I forget how much maybe $50 ?
posted by lobstah at 7:22 AM on March 14, 2011
posted by lobstah at 7:22 AM on March 14, 2011
I am not an expert, not a tax preparer, etc etc... merely speaking from my own experience filing estimated taxes for several years.
My understanding is that you usually calculate your estimated payments based on a projected income for the year, which is often based on what you made the year before. So, if '10 was the first year you had this untaxed income, you probably won't have to pay a penalty for not paying the estimated payments for '10. Just make sure you pay it for '11.
You don't have to submit the 1040-ES after the fact. Just calculate what you owe now, and there may or may not be a penalty for not having paid it before. But if it turns out that you owe very little now (which you probably will, since afaik grad students don't make a lot of money), then the penalty -- if there is one -- will be quite small, since its a percentage of what you didn't pay that you should have paid.
Hope that makes sense -- very much a layman here. I am no stranger to the total panicking about estimated payments thing, but just want to reassure you that this is probably not a big deal and you don't need to worry, as long as you pay whatever you owe now.
posted by crackingdes at 7:25 AM on March 14, 2011
My understanding is that you usually calculate your estimated payments based on a projected income for the year, which is often based on what you made the year before. So, if '10 was the first year you had this untaxed income, you probably won't have to pay a penalty for not paying the estimated payments for '10. Just make sure you pay it for '11.
You don't have to submit the 1040-ES after the fact. Just calculate what you owe now, and there may or may not be a penalty for not having paid it before. But if it turns out that you owe very little now (which you probably will, since afaik grad students don't make a lot of money), then the penalty -- if there is one -- will be quite small, since its a percentage of what you didn't pay that you should have paid.
Hope that makes sense -- very much a layman here. I am no stranger to the total panicking about estimated payments thing, but just want to reassure you that this is probably not a big deal and you don't need to worry, as long as you pay whatever you owe now.
posted by crackingdes at 7:25 AM on March 14, 2011
I believe it is 5% of the underpayment for every month, with a maximum of 25% of the total amount of underpayment. This happened to me my first year... it sounds a lot worse than it actually is. If you don't have an accountant, get one. There are some loopholes that he might be able to help you exploit depending on your withholding this year vs. last (if you had withholding).
posted by fusinski at 7:30 AM on March 14, 2011
posted by fusinski at 7:30 AM on March 14, 2011
You may fall under one of the "safe harbor" provisions, whereby you don't have to pay estimated tax if your tax payments for the year equal 100% of last year's tax liability. It's the sort of thing where TurboTax or similar will give you a heads-up. In loose general terms, if you go from zero tax liability to greater-than-zero, that gives you a year's grace on estimated taxes, though it makes sense to squirrel away what you would be paying in quarterlies.
posted by holgate at 7:32 AM on March 14, 2011
posted by holgate at 7:32 AM on March 14, 2011
Yeah, it's nothing to worry about--I'm in the same boat, and I don't even pay estimated taxes because it's easier to just eat the fairly minimal penalty.
posted by nasreddin at 8:34 AM on March 14, 2011 [2 favorites]
posted by nasreddin at 8:34 AM on March 14, 2011 [2 favorites]
I believe it is 5% of the underpayment for every month, with a maximum of 25% of the total amount of underpayment.
YMMV, but mine is a lot lower than this--after not paying for a whole year, it totals up to about $40-$50, or at least that's what TurboTax tells me.
posted by nasreddin at 8:54 AM on March 14, 2011
YMMV, but mine is a lot lower than this--after not paying for a whole year, it totals up to about $40-$50, or at least that's what TurboTax tells me.
posted by nasreddin at 8:54 AM on March 14, 2011
Just a warning that the safe harbor provisions that holgate mentioned don't necessarily apply to state taxes. My first year of grad school, I was exempt from penalties on my federal taxes, but was charged a small penalty (between $50 and $100) for under-payment of state/local taxes. Which in the heady days of 2004, was justified given I could earn 4% interest on those underpaid taxes.
And like others said, don't worry about paying 2010 estimated taxes now. Turbo tax and the like will catch this and do the for 2210 calculations for you, and tell you how large of a lump-sum payment you should submit. They will also calculate your estimated taxes for 2011 and let you print out payment vouchers or set up automated payments so everything is settled for next year.
posted by twoporedomain at 8:54 AM on March 14, 2011
And like others said, don't worry about paying 2010 estimated taxes now. Turbo tax and the like will catch this and do the for 2210 calculations for you, and tell you how large of a lump-sum payment you should submit. They will also calculate your estimated taxes for 2011 and let you print out payment vouchers or set up automated payments so everything is settled for next year.
posted by twoporedomain at 8:54 AM on March 14, 2011
I believe it is 5% of the underpayment for every month, with a maximum of 25% of the total amount of underpayment.
Oh, incidentally, this isn't right. (It may be in the case of state taxes, but not for federal.) The figure, in the worst-case scenario, is basically 2.3% of your current year tax bill multiplied by .9 (depending on what your situation was the previous year). So on a federal tax bill of $2000, which is pretty high for your typical grad student, you'd owe a penalty of $42. Since I do my own taxes, I find paying that once a year so much easier than worrying about what I've paid and when, especially if I'm planning on being out of the country.
And, just to be clear, you're not committing any crimes or anything like that. The government just wants you to do its work for it, and is charging you for slightly inconveniencing it. You won't end up like Al Capone.
posted by nasreddin at 9:12 AM on March 14, 2011
Oh, incidentally, this isn't right. (It may be in the case of state taxes, but not for federal.) The figure, in the worst-case scenario, is basically 2.3% of your current year tax bill multiplied by .9 (depending on what your situation was the previous year). So on a federal tax bill of $2000, which is pretty high for your typical grad student, you'd owe a penalty of $42. Since I do my own taxes, I find paying that once a year so much easier than worrying about what I've paid and when, especially if I'm planning on being out of the country.
And, just to be clear, you're not committing any crimes or anything like that. The government just wants you to do its work for it, and is charging you for slightly inconveniencing it. You won't end up like Al Capone.
posted by nasreddin at 9:12 AM on March 14, 2011
I also pay once a year when I file, and just pay the penalty. It's worth the few bucks to me to only have to think about it once a year. You will not have any federal penalty this year if you did not owe money last year. And even if you did, it will be pretty small.
posted by Nothing at 9:21 AM on March 14, 2011 [2 favorites]
posted by Nothing at 9:21 AM on March 14, 2011 [2 favorites]
I am also a graduate student paid in the same way as you. The first year I was on my fellowship, I had no idea that I was supposed to be paying estimated tax until I filed my return. You are only liable for a certain amount of underpayment, and don't quote me on the exact number here, but I think it's something like 90% of your previous year's income. So, if you are near the beginning of your graduate career and were previously in college making a pittance from work-study, your previous year's income might be very low. At least, it was in my case. I think my underpayment penalty was in the vicinity of $10 for the whole year. I made sure to file estimated taxes in future years, of course.
Other tax software will probably do this too, but I can at least vouch for TaxACT being able to schedule your quarterly estimated tax payments as direct withdrawals from your bank account. I cannot emphasize the convenience of not having to think about this. Online tax software is usually free for people in sufficiently low tax brackets (e.g. most graduate students), or if you don't qualify, at least a nominal charge. Trust me, you have better things to do than all the paperwork to calculate your underpayment penalty by hand.
posted by wondercow at 10:51 AM on March 14, 2011
Other tax software will probably do this too, but I can at least vouch for TaxACT being able to schedule your quarterly estimated tax payments as direct withdrawals from your bank account. I cannot emphasize the convenience of not having to think about this. Online tax software is usually free for people in sufficiently low tax brackets (e.g. most graduate students), or if you don't qualify, at least a nominal charge. Trust me, you have better things to do than all the paperwork to calculate your underpayment penalty by hand.
posted by wondercow at 10:51 AM on March 14, 2011
See here for details.
Some safe harbors that may apply to you:
-You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000.
-You did not have a tax liability for 2009.
If none apply, then you'll likely have to pay a penalty. You can allow the IRS to calculate it, or calculate it yourself (it seems daunting, but if you go step-by-step, it's actually quite simple). However, your penalty may be lower by using the "annualized income installment method" - which should be used if you did not receive your income evenly throughout the year. So, if your total tax due was say, $2000, under the regular method, you would be penalized based on not having made a $500 payment on each of the payment dates. However, if all of the income that gave rise to that tax liability was earned in the last quarter, you'd only be penalized for the number of days since Jan 15, 2011 that the $2000 remains unpaid.
You'll need Form 2210 and be sure to complete Schedule AI of the form to use that method.
Note: None of what I've said necessarily applies to your state/local taxes.
posted by melissasaurus at 4:54 AM on March 17, 2011
Some safe harbors that may apply to you:
-You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000.
-You did not have a tax liability for 2009.
If none apply, then you'll likely have to pay a penalty. You can allow the IRS to calculate it, or calculate it yourself (it seems daunting, but if you go step-by-step, it's actually quite simple). However, your penalty may be lower by using the "annualized income installment method" - which should be used if you did not receive your income evenly throughout the year. So, if your total tax due was say, $2000, under the regular method, you would be penalized based on not having made a $500 payment on each of the payment dates. However, if all of the income that gave rise to that tax liability was earned in the last quarter, you'd only be penalized for the number of days since Jan 15, 2011 that the $2000 remains unpaid.
You'll need Form 2210 and be sure to complete Schedule AI of the form to use that method.
Note: None of what I've said necessarily applies to your state/local taxes.
posted by melissasaurus at 4:54 AM on March 17, 2011
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posted by lobstah at 7:21 AM on March 14, 2011