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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22653
Experience:  Taxes, Immigration, Labor Relations
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This year (2012) I retired from one company effective Feb 1.

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This year (2012) I retired from one company effective Feb 1. My year to date earnings with them including severance Pay was 161,941.86. Total Fed Tax Withheld was 39,388.36. Other taxes withheld were Fed Med/EE 2,349.03 and Fed OASDI/EE 4,624.20.

Also, on FEB 1, 2012 I started another job which is paying me around 24,000 per month.

Question is: How do I figure my Estimated tax payments and what do I add together to get my total taxes and total income. Since nearly 40,000 of taxes have already been paid in this year I need to start paying on quarterly basis right away. Just not sure where to start.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to Just Answer!
The first step - we need to estimate your total tax liability.
-- gross pay from your previous job - $161,941
-- expected wages from your new job $24,000 * 11 = $264,000
Total $425,941
Assuming you are single, standard deduction, no dependents, no other deductions or credits - your expected tax liability would be ~$123,000.
It might be less if you itemize or have other deductions.

Next step - you estimate your withholding.
Assuming you filed W4 form with your new employer as Single with two allowances - your expected income tax withholding will be $6360*11=$69,960
Total withholding $39,388 + $69,960 = $109348

For 2012, the maximum taxable earnings amount for Social Security (OASDI) taxes is $110,100. There is no limitation on taxable earnings for Medicare's Hospital Insurance (HI) taxes.

It is possible that your new employer will withheld Social Security (OASDI) taxes - if yes - you will be able to claim a refund on your tax return for $4624.

So your total expected tax payments is $109348 + $4624 = $113972

and you might owe additional - $123,000 - $113972 = ~$9000.

And the last step - to determine your estimated tax payments.

If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

Thus - if your prior year tax liability is less than your expected payments - $113972 - you are not required to make estimated payments - and may pay all your tax liability by Apr 15 following year.

You may however - increase your withholding from paychecks to cover additional tax liability.

Please be aware that is a very raw estimate - and we may adjust it with deductions you most likely will have.

Let me know if you need any help.

Customer: replied 2 years ago.
All wages for my new job which will be the 264,000.00 are 1099 Earnings as an independent contractor. I should have mad that more clear. I have no withholding now only 1099 earnings.
Expert:  Lev replied 2 years ago.
In this case - I need to make some correction to estimations above.

The first step - we need to estimate your total tax liability.
Assuming you are single, standard deduction, no dependents, no other deductions or credits - your expected tax liability would be ~$123,000.
Plus self-employment taxes $264,000 * 2.9% = $7656
Total expected tax liability - $130,656.
You might deduct some self-employment expenses - and that will reduce your income and self-employment tax liability.
Your tax liability might be less if you itemize or have other deductions.

Next step - you estimate your withholding.
Total withholding $39,388
and you might owe additional - $130,656 - $39,388 = ~$91268.

And the last step - to determine your estimated tax payments.

$91268 / 4 = $22817

The first payment was due Apr 15, 2012 - so you might want to do it as soon as possible.

Thus - if your prior year tax liability is less than your expected payments - $113972 - you are not required to make estimated payments - and may pay all your tax liability by Apr 15 following year.

You may however - increase your withholding from paychecks to cover additional tax liability.

As I mentioned above - if you will pay at least 100% of the tax shown on your return for the prior year - there will not be underpayment penalties - and you will be able to pay the remaining tax liability by Apr 15m, 2013 - just be sure to have these money.

Assuming your 2011 tax liability was $80,000 - see form 1040 line 61 - http://www.irs.gov/pub/irs-prior/f1040--2011.pdf

Then your required estimated payments are

$80,000 - $39,388 = ~$40612.

$40612 / 4 = ~$20,000

Please be aware that is a very raw estimate.

Let me know if you need any help.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22653
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you

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