Estimated Tax paid online?


D

dumbstruck

Can US fed or state quarterly estimated taxes be paid online? The
paper forms and process is so awkward and unsuited for bursts of income
that don't have auto tax deduction and come in surprise lumps. Even
doing it meticulously correctly can trigger unjustified penalty fees
that are easier to pay off rather than the excruciation of resubmitting
complete 1040 forms for each quarter.

I thought it too good to hope for that you could just zing in
unexpected bits of income to tax collectors electronically, either
quarterly or preferably anytime. But I'm looking at a case where
electronic filing of fed and state taxes has led to a complete cutoff
of paper mailings of tax forms to the filer, including the normally
inevitable estimated tax forms.

Does this mean there are online methods to submit estimated tax? Of
course I mean short of the brute force pejorative approach where the
govt can mark you as a no-hope idiot and forever traps a chunk of
income from all sources including investment. And assume the juggling
of w-4 type deductions aren't elastic or timely enough to extend to
this expanded use. thanks
 
Ad

Advertisements

D

Douglas Johnson

dumbstruck said:
Can US fed or state quarterly estimated taxes be paid online?
Look at: http://www.irs.gov/pub/irs-pdf/p3806.pdf It appears that you can use
the EFTPS system (familiar to small business owners) to pay personal taxes as
well.
The
paper forms and process is so awkward and unsuited for bursts of income
that don't have auto tax deduction and come in surprise lumps.
I'm confused. The process is simple -- mail a check with the payment voucher,
form 1040-V. That's the shortest form I've ever seen from the government.
Even
doing it meticulously correctly can trigger unjustified penalty fees
that are easier to pay off rather than the excruciation of resubmitting
complete 1040 forms for each quarter.
You don't have to submit complete 1040 forms each quarter. You do have to
estimate the amount to pay. Online payment won't solve that problem.

-- Doug
 
D

dumbstruck

Wow, I thought that was just for businesses - www.eftps.gov looks
great. However, the enrollment process seems suspiciously user
friendly for gov't and they give a 555-XXXX number for trouble calls
after they have your checking info. Despite 555's fame for meaning an
invalid phone number, I'm optimistic that isn't a Nigerian scam site...

If that works (for the feds; where's state equiv?), it can save regular
panic mailings such as caused by catch22 rules. For example, mutual
funds must distribute at end of year which may give unexpected massive
phantom income. You may not see any money, but 20% or so of an
investment savings can be magically designated as income.

If you happen to be home and watching you may arrange some estimated
tax payments just before deadline, then get socked by a penalty fee
anyway. The fed has sniffer algorithms that decides your income likely
was earned earlier and should have gotten est tax for 3Q for instance.
To defend this, you have to resubmit your 1040 calculation done
seperately for the 4 quarters, a fate worse than 100 root canals.
 
D

Douglas Johnson

dumbstruck said:
Wow, I thought that was just for businesses - www.eftps.gov looks
great. However, the enrollment process seems suspiciously user
friendly for gov't and they give a 555-XXXX number for trouble calls
after they have your checking info. Despite 555's fame for meaning an
invalid phone number, I'm optimistic that isn't a Nigerian scam site...
It isn't. I've used it for years. The IRS always ends up with the money.
If you happen to be home and watching you may arrange some estimated
tax payments just before deadline, then get socked by a penalty fee
anyway. The fed has sniffer algorithms that decides your income likely
was earned earlier and should have gotten est tax for 3Q for instance.
To defend this, you have to resubmit your 1040 calculation done
seperately for the 4 quarters, a fate worse than 100 root canals.
I assume you are talking about form 2210AI, which is a nasty little critter. I
just finished mine. It took me about an hour. TurboTax and Quicken are big
helpers.

However, EFTPS is not going to help with the problem. The problem is built into
various investments like mutual funds and limited partnerships which pass income
through to the investor, but don't account for it until the end of the year.
Some limited partnerships don't even tell you how much income they are
attributing to you until after April 15th, so penalties are almost inevitable.
Just consider them an investment expense.

There are several ways of avoiding penalties, which I won't list because they
are the usual complicated mess that I'm certain to get wrong. But if you are
suffering from penalties, you should investigate the related rules.

-- Doug
 
T

Tad Borek

dumbstruck said:
Can US fed or state quarterly estimated taxes be paid online? The
paper forms and process is so awkward and unsuited for bursts of income
that don't have auto tax deduction and come in surprise lumps. Even
doing it meticulously correctly can trigger unjustified penalty fees
that are easier to pay off rather than the excruciation of resubmitting
complete 1040 forms for each quarter.
Dumbstruck,
It sounds like you're paying estimated taxes using the most difficult of
the allowable methods, which is to predict your actual tax liability and
pay as you go, quarter to quarter.

That's fine and if you want to fine-tune your payments (meaning, don't
end up owing & don't end up with a refund) it's the way to go. But for
the hassles you mention most people with variable income don't do that,
they use the "prior year" safe-harbor for avoiding penalties. In this
method you base your estimated tax payments on last year's taxes. It
doesn't nail your tax exactly but you do avoid penalties.

The basic idea is that if you pay an amount equal to 100% of last year's
taxes (110% if your adjusted gross income is $150k+), you won't get a
penalty for underpayment of taxes. This can come from a combination of
withholding and estimated tax payments.

So let's say you get a big gains distribution from a mutual fund in
December. You'd look at your 12/31 pay stub and see if your total
withholding for the year met the 100/110% safe harbor. If so you don't
need to make an estimated payment, you're off the hook until April 15.
If not then you can just pay enough (by the 1/15 quarterly estimated tax
deadline) to meet it. You won't hit your tax exactly but at least you
won't get a penalty and won't be doing a mini tax return on New Years
Day. All you did was take last year's bottom-line tax, and compare it to
your withholding, and make up the difference (or enough to hit 110% if
your income requires it).

You'd need to check with your state to see what their "safe harbors"
are. Many states don't require estimated tax payments until the amounts
are pretty big, assuming you have withholding from a salaried job.

For details on above google PRIOR YEAR SAFE HARBOR.

BTW paying online doesn't help this - the tricky part is figuring out
how much to pay! The form (1040ES) is just a slip with your name, SSN -
you attach it to your check.

-Tad
 
K

kevin

You'd look at your 12/31 pay stub and see if your total
withholding for the year met the 100/110% safe harbor. If so you don't
need to make an estimated payment, you're off the hook until April 15.
If not then you can just pay enough (by the 1/15 quarterly estimated tax
deadline) to meet it.
Not quite. Even if you are due a refund at the end of the year, you may
still owe a penalty if you didn't pay your taxes during the correct
quarter. Just tossing everything into the 1/15 deadline doesn't help if
you skimped earlier. I forget if you get to subtract your withholdings
off the top, or you have to figure it quarter-by-quarter. I think the
former, which doesn't make things any easier upfront when trying to
guess ahead for the year, but makes it easier after the fact when
figuring penalties.
 
T

Tad Borek

kevin said:
Not quite. Even if you are due a refund at the end of the year, you may
still owe a penalty if you didn't pay your taxes during the correct
quarter. Just tossing everything into the 1/15 deadline doesn't help if
you skimped earlier. I forget if you get to subtract your withholdings
off the top, or you have to figure it quarter-by-quarter. I think the
former, which doesn't make things any easier upfront when trying to
guess ahead for the year, but makes it easier after the fact when
figuring penalties.

That's a good point Kevin, but the scenario I was thinking of was a
large taxable distribution from a mutual fund near year-end - that seems
to be one of the things the OP was concerned with. And there you could
use the annualized income installment method for figuring the required
estimates/withholding. With all that income in December, no estimated
tax payment wouldn't be due until Jan 15. That's assuming that
withholding wasn't set too low to cover normal taxes from salary income.

You're right though that you can't generally just write a fat check in
January and avoid penalties. That works only if the income was grouped
in the fourth quarter and you were withholdng enough along the way to
cover your regular taxes.

Another thing I forgot to mention, which I advise some clients to do who
are worried about penalties from income discovered after the fact (such
as those with K-1 income that is sometimes reported properly only after
April 15), is to intentionally overpay taxes and apply the refund to the
first estimated tax payment. That way if you end up with "surprise"
income that you only know about after your tax return is filed, you can
just amend the return and shift the dollars from refund/estimated tax
payment to prior-year taxes paid. If you paid enough by 4/15 you would
avoid penalties for underpayment of tax, and now might just need to
catch up a bit with estimated taxes.

-Tad
 
K

kevin

intentionally overpay taxes and apply the refund to the
first estimated tax payment. That way if you end up with "surprise"
income that you only know about after your tax return is filed, you can
just amend the return and shift the dollars from refund/estimated tax
payment to prior-year taxes paid.
I'm just an ordinary tax payer, not any kind of tax expert, so I may be
a bit lost here, but:

I was under the impression that this is disallowed? I remember the 1040
instructions for that line (the one where you can elect to apply an
overpayment to your next year taxes) having a disclaimer along the
lines of "the amount you put here can not be changed later".

Am I off base here, or maybe misunderstanding what they mean by
"changed later"?
 
Ad

Advertisements

D

dumbstruck

I thought the penalty forms had a pitfall exception for safe harbor,
and anyway got out of the habit of using it recently. In a post bubble
world, taxable income may be imploding so that safe harbor payments
would run prohibitively high. Then sharp blips of recovery threaten to
upset things at end of quarters. OK, back to work armed with safe
harbor calculations and e-transfer.

I'm amused at the comfort level for relying on mail to pay estimated
tax. Recently took them about 3 weeks to cash my check. Lucky I was
able to monitor my bank electronically to confirm they got the letter,
or else add more weeks waiting for bank stmt. Also lucky I was able to
monitor investment income online, or would have to add even more weeks
for mailed stmts to show how much to make the check for. Mail is quite
uncertain where I live, and you have to allow waiting time for it maybe
never arriving and having to be resent.

Such factors make the present system of deadlines catch22 without
e-transfer, and the price of mistakes can be high. They should have
never reduced the underpayment allowance from 20 to 10% for
snail-mailers; there is too much assumption of steady income and
withholding built in.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads


Top