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Estimated Tax Payments with ABX3 3 Law Change

Updated: April 9, 2009

A taxpayer must make estimated tax payments if they expect to owe at least $500 ($250 if married/RDP filing separately) in tax for the 2009 tax year and they expect their withholding and credits to be less than 90 percent of the tax shown on their 2009 tax return or the tax shown on their 2008 tax return including alternative minimum tax.

If your client is required to make estimated tax payments, they are required to make installments of 30 percent of the required estimated tax liability for the first and second quarters and 20 percent of the required estimated tax liability for the third and fourth quarters. Before 2009, payments were made in four equal installments.

Increase to PIT tax rate and reduced dependent exemption credit

A taxpayer should also consider the effects of another recent law change when figuring estimated tax payments. The new law calls for an increase in each of the 2009 tax rates by an additional 0.25 percent and a reduction (-$210) to dependent exemptions, adjusted for inflation. These changes will result in an increased tax liability. However, an under payment of estimated tax as a direct result of these changes to the tax rate and dependent exemption credit will not result in an underpayment penalty.

 

Married Filing Jointly with Two Dependents Example

Without the new tax rates/dependent exemption credit

With the new tax rates/dependent exemption credit

 

 

 

 

Taxable Income

$100,000

Taxable Income

$100,000

 

 

 

 

Tax

*$4,689

Tax

*$4,689

 

 

 

 

 

 

Taxable Income

$100,000

 

 

Increase in tax rate

X 0.0025

 

 

Increase Tax

$250

 

 

 

 

 

 

Tax

*$4,689

 

 

Increase Tax

$250

 

 

Total

$4,939

 

 

 

 

Exemptions Amount

(816)

Exemptions Amount

(396)

Total Tax

$3,873

Total Tax

$4,543

 


*Based on the 2008 tax table.