I calculated my expected self employment income for 2006 in January of 2006 and paid $1500 in tax for each of the first 3 quarters; then I went on disability (had a baby) and had hardly any income for the fourth quarter (which I didnt plan on when I had initially calculated my tax installment payment last January). I have calculated that I have already paid (in my first 3 installments) more than I will owe in taxes for the year. Do I need to pay self-employment tax on my fourth quarter earnings? If I dont will I be charged interest/penalties even though I have overpaid already?
2007-01-15 08:39:15 · 3 answers · asked by sam & jack 2 in Business & Finance ➔ Taxes ➔ United States
No, if you've already paid in close to what you will owe, then there's no need to make a fourth-quarter payment. You will not be penalized if you don't, unless you come up short when you file your return.
2007-01-15 09:24:39 · answer #1 · answered by Judy 7 · 0⤊ 0⤋
The underpayment penalty is calculated on the total tax liability, not just the SE portion.
Generally, to avoid the underpayment penalty you must pay at least 90% of the current year tax or 100% of the prior years tax.
The link to the IRS pub. 505 chapter 2 regarding calculating estimated taxes may help.
2007-01-15 16:55:55 · answer #2 · answered by CPA 2 · 0⤊ 0⤋
No you need not pay in for fourth qtr. if you have already paid in more than you will owe for the yr. There will be no penalties or interest. Was it boy or girl?
2007-01-15 16:50:26 · answer #3 · answered by Anonymous · 0⤊ 0⤋