Tax Filter: I Swear I'll Pay As I Go Enough This Time

April 14, 2011 12:55 PM

Must I pay estimated taxes this year if last year I didn't withhold enough taxes and triggered a $29 penalty when I filed my 2010 return?

My goal is to neither owe or be owed money by the IRS as the end of the year. Last year, I forgot to change the withholding at the normal point which, combined with a little unexpected side-business income at the end of the year, made me owe money (a little under $2000) and an underpayment penalty of $29. Oops. As far as mistakes go, this isn't all that costly.

I used TurboTax to file my return and when I finished, the final PDF I was given (and no other place) said:

Estimated Payments for 2011 - Do not mail these vouchers with your 2010 income tax return. The estimated vouchers displayed below are used to prepay your 2011 income taxes that will be filed next year. If you expect to owe more than $1,000 in 2011, you may incur underpayment penalties if you do not make these payments. This printout includes your estimated federal estimated tax vouchers for your federal estimated taxes (Form 1040-ES).

Amount $ 425.00 $ 425.00 $ 425.00 $ 425.00
Due Date 04/18/2011 06/15/2011 09/15/2011 01/17/2012

Include a separate check or money order "United States Treasury". Write your social security number and "Form 1040-ES" on each check.

The formatting is a bit screwy, but you get the idea, four even payments of $425, running on the assumption that whatever was wrong this year will be wrong next year and this will prevent that. I understand that the income tax is a pay-as you-go tax and people who don't have an employer who withholds or other sources of income need to do this. Is this merely a suggestion from TurboTax that I do this to avoid this mistake again (which I've already fixed by adjusting my withholding months ago) or is this the IRS' way of making sure I do in fact pay-as-I-go? It seems like if I've adjusted my withholding and do this, they'll end up owing me the under $2k amount next year through, do I get to charge them a $29 overpayment penalty?

Thanks MeFi!

posted by anonymous to Work & Money (4 answers total)

See publication 1040-ES under the "General Rule" section. Paraphrased, if you've fixed your withholdings such that you will owe less than $1,000 when tax time comes around, you don't need to make estimated payments.
posted by 0xFCAF at 1:00 PM on April 14, 2011

I believe it's just a suggestion from TurboTax. The IRS isn't going to do anything more than just make sure you pay the penalty if it happens again.
posted by Melismata at 1:33 PM on April 14, 2011

The IRS will charge you a penalty if you have to pay more than $1,000 in taxes for 2011 and didn't pay quarterly estimated taxes. If you think that will be the case again this year, you should send in the estimated payments. If you don't think side income will be as high, or if you've changed your withholdings, you don't have to do so.

For what it's worth, we opted to send in the estimated payments to avoid the penalty.
posted by peanut_mcgillicuty at 1:57 PM on April 14, 2011

Aha! I wondered what the mysterious penalty on my taxes was all about!
posted by TheCoug at 8:30 PM on April 14, 2011