Figuring your quarterly estimated tax payments is not quite as complicated as winning a jelly-beans-in-a-jar counting contest. Still, new rules, including higher tax rates, limits on itemized deductions, and two Medicare surtaxes, add a different flavor to the calculation this year.
For example, say you and your spouse will be subject to the additional 0.9% Medicare surtax because your combined wages exceed the $250,000 threshold. The two of you might be expecting your employers to withhold the additional amount.
However, employers are only required to withhold when your compensation exceeds $200,000 — without taking into consideration how much your spouse makes or any income you may earn from another job.
That could mean you’ll owe tax — and perhaps a penalty for underpaying the tax — on your 2013 return. Estimated payments can help cover the shortfall.
The 3.8% surtax on net investment income affects estimated payments too. Are you receiving income from capital gains, interest or dividends? It’s a good idea to estimate your income to determine if you’re over the $250,000 threshold ($200,000 when you’re single).
The basic estimated tax rules have not changed. Generally, you can avoid penalties by paying in the same amount of tax you owed on your 2012 return, or 90% of this year’s tax, whichever is less. When your income is over $150,000, you’ll have to pay 110% of last year’s tax or 90% of this year’s.
Think you may need to make or adjust your 2013 estimates? Give us a call. We’re here to help.