Estimated taxes question

[drshg]

I am employed with my income reported on a W-2 with automatic withholdings. My wife has a business and needs to pay estimated taxes for 2021 and she only started working in September so she will be paying estimated taxes January 15, 2022. We are trying to do this ourselves and we are filling out the estimated taxes worksheet (Form 1040-ES) but we have some questions. All the questions stem from the fact that we are only paying estimated taxes on her income but we will be filing jointly. First, we will be taking the standard deduction for 2021, but if we use the standard deduction on the worksheet (line 2a) it will completely negate her earnings (which are under 10k). This is confusing me because we are only paying estimated taxes on her income but not OUR income. But obviously the standard deduction is for our combined income. Should we not calculate in the standard deduction or should we and then end up needing to not pay estimated taxes? The same goes for credits (line11b). We will be getting the Child Tax Credits but that will almost completely negate her earnings as well. Does all this mean that we are not required to make estimated tax payments until her income alone is higher than all the deductions and credits, or do we still have to pay estimated taxes because the deductions and credits are taken from my income or our total income? I hope my question is clear. Thanks in advance for any answers

[wideopenspaces]

Hopefully others will chime in but I'd figure out your total tax burden, subtract what you are paying from your paycheck and then pay the rest as quarterly taxes.

My husband and I are both w2 employees but they don't withhold enough for either of us so this is how we pay the extra amounts.

[CordMcNally]

Check to see if you meet any of the safe harbors of paying 110% of last year's (2020) taxes (assuming your AGI is >$150k) or 90% of this year's (2021) taxes or you'll owe less than $1000 for this year's (2021) which is typically fairly difficult

Depending on your W2 income, it may be easier to just withhold everything from your income or you can pay estimated taxes on her income.

[jfoxcpacfp]

Skip the confusing crap you are told to calculate. Most likely and easiest calculation, assuming your previous yr's income was $150k and is same or higher this year:

1. Find line 24 of 2021 Form 1040
2. Multiply that amount * 110%
3. Calculate the total amount in Box 2 of all Forms W2, 1099R, 1099G
4. Subtract #3 from #2
5. Pay the result (#4) on 1/18/22 (if a positive amount)

This is for federal only. Most states are similar, but not all.

[Molar Mechanic]

Correct me if I’m wrong, but if she only started in September, she doesn’t owe quarterlies for 2021. Be ready to pay a couple of grand extra in April and don’t worry about it if so.

Edit: See below, I was wrong, pay your tax in January.

[spiritrider]

You are incorrect.

Income starting in September or even just December is subject to quarterly estimated tax payments due January 15th. The actual value of any amount could be reduced or even eliminated by withholding or as already pointed out, one of the safe harbors.

All taxable income is subject to timeliness requirements of tax payments. A failure to do so by 1/15 for the 9/1 - 12/31 "quarter" would result in underpayment penalties.

[Molar Mechanic]

You are incorrect.

Income starting in September or even just December is subject to quarterly estimated tax payments due January 15th. The actual value of any amount could be reduced or even eliminated by withholding or as already pointed out, one of the safe harbors.

All taxable income is subject to timeliness requirements of tax payments. A failure to do so by 1/15 for the 9/1 - 12/31 "quarter" would result in underpayment penalties.

Thank you, and I apologize for bad information! I must have been in a safe harbor when I crossed that threshold.

[drshg]

Thanks everyone for your help.
Last year (2020) my AGI was under 150k (I was a resident) and this year (2021) it will still be below 150k (I was a resident) and I received a refund on my federal tax return. From what I'm reading this would mean I am in the safe harbor and do not need to make estimated tax payments?
My question is does the safe harbor rule that says that if you didn't owe any taxes the previous year apply if I actually "owed" taxes but withheld more than necessary or does it only apply if I made no money and therefore owed no taxes? Because in 2020 I definitely paid taxes but at the end of the day when I filed my taxes I was owed a refund because of credits and deductions.

[CordMcNally]

Thanks everyone for your help.
Last year (2020) my AGI was under 150k (I was a resident) and this year (2021) it will still be below 150k (I was a resident) and I received a refund on my federal tax return. From what I'm reading this would mean I am in the safe harbor and do not need to make estimated tax payments?
My question is does the safe harbor rule that says that if you didn't owe any taxes the previous year apply if I actually "owed" taxes but withheld more than necessary or does it only apply if I made no money and therefore owed no taxes? Because in 2020 I definitely paid taxes but at the end of the day when I filed my taxes I was owed a refund because of credits and deductions.

It means if you had no federal tax liability which was not your case. The other way around wouldn’t make sense because sometimes those who make millions get refunds because of overpayments.

[jfoxcpacfp]

Thanks everyone for your help.
Last year (2020) my AGI was under 150k (I was a resident) and this year (2021) it will still be below 150k (I was a resident) and I received a refund on my federal tax return. From what I'm reading this would mean I am in the safe harbor and do not need to make estimated tax payments?
My question is does the safe harbor rule that says that if you didn't owe any taxes the previous year apply if I actually "owed" taxes but withheld more than necessary or does it only apply if I made no money and therefore owed no taxes? Because in 2020 I definitely paid taxes but at the end of the day when I filed my taxes I was owed a refund because of credits and deductions.

The IRS has several safe harbor calculations. $150k safe harbor is for the 110% rule only. You are now in the cloud that says you must pay in at least 90% of current year tax or 100% (rather than 110%) of prior yr tax.

Having no tax liability in the prior year means you owe zero taxes based upon your income, deductions, and credits, before accounting for withholding and estimated pmts. This is different than having a “balance due” or refund based upon income/deductions/credits, i.e. you get back at least everything you withheld/paid in and maybe more if you qualify for any “refundable” credits.