Cook Wealth Management Group

Estimated Taxes – Can You Catch Up?

The first two estimated tax payment deadlines for 2010 have come and gone. Are you behind on your payments?

Do I Owe Estimated Taxes?

Did you forget (or not know about) additional sources of income when you completed your W-4?

Did you become self-employed?

Did you cash in stock this year but keep your withholding the same?

Do you pay your nanny’s federal payroll tax?

If so, you may be required to pay estimated taxes up to four times per year.*

When Do I Pay & What’s With All the Interest and Penalties?

Estimates are due this year on April 15, June 15, Sept 15, and Jan 17, 2011. If you pay less than required, or don’t pay at all, you will be charged interest on the amount due, at a rate that is subject to change each quarter (currently 4%). If you neglect to pay any estimates this year, a “failure to pay” penalty of 0.5% per month will be added to your tax due and interest incurred.

I Missed a Payment (or 2) – What Should I Do?

Of course it’s best to stay ahead and avoid any interest, but if you haven’t paid any estimated tax this year, here are a few ways to catch up.

  • If you’ve only missed one or two payments, and can afford to pay extra to compensate, double up on the remaining estimates. To get back on schedule quickly, file a 1040-ES as soon as possible and avoid additional penalties.
  • If you can’t pay your overdue estimates now, catch up in the latter half of the year by upping your salary withholding.  Simply file a new W-4 to have the overdue estimate payments automatically deducted from your paycheck. (For advice on numbers, consult your tax advisor.)
  • If you haven’t yet filed your 2009 tax return, it may be less painful to opt out of your tax refund. Apply your overpayment to the estimates you owe, and you’ll pay off your estimated tax with money you haven’t yet received.

Although paying taxes four times per year may seem like a hassle, try to consider it a help: paying four smaller payments is usually much easier than paying one hefty sum.

*Even if one of the above four questions applies, you may be exempt from estimated taxes:
– if you anticipate the balance due to be less than $1,000 for your 2010 taxes
– if you covered 100% of your prior year tax liability with taxes withheld (if your 2009 adjusted gross income is in excess of $150,000, you will need to have 110% withheld)
– if you owed no taxes in 2009.
This article is derived from “Do You Owe Estimated Taxes?” by Bill Bischoff. Updated on February 2, 2010. Originally published December 1, 2000.