Tax reform restructured the Internal Revenue Code from top to bottom-but not the deadlines for filing federal returns and the due dates for making payments. Here are some key dates to remember in January.
Monday, Jan. 16 (the usual date of Jan. 15 falls on a Sunday this year)
is the due date for the final quarterly installment of your estimated individual income tax (including any self-employment tax or alternative minimum tax) for 1988, if you are required to make payments because your estimated tax is more than $500. The law, though, permits you to skip this final payment if you plan to file your 1988 Form 1040 and pay your tax in full by Tuesday, Jan. 31.
Estimated payments are due from individuals with income from sources not subject to withholding. Mainly, they are self-employed individuals with profits from businesses and professions, investors who receive interest, dividends, rents, gains from sales of investments and the like, and retirees who do not have tax withheld from pension payments.
The law authorizes the IRS to assess hefty, nondeductible penalties for insufficient quarterly payments or for failure to pay the installments as they become due. It makes no difference that your final estimates prove sufficient to erase any balance due when you submit your Form 1040 for 1988.
But take heart. There are exceptions that relieve you of any penalties for underpayments. You are off the hook for penalties as long as you make payments by the quarterly due dates of April 15, June 15, Sept. 15 and Jan. 16 (including withholding taken from your paychecks) that exceed a specific benchmark.
Those payments must be more than the least of the following three amounts:
– Ninety percent (66 2/3 percent if you are a farmer) of the taxes you owe for 1988.
– One-hundred percent of the taxes you paid for 1987. This holds true even if the amount due was zero, provided the return covered 12 months. Since this exception is a fixed number, it is the easiest way for most people to calculate their payments and avoid penalties. To illustrate, assume you paid $8,000 in taxes for 1987 and $8,000 through estimates or withholding in 1988. Result: You are home free, regardless of how much your 1988 liability turns out to be.
– Ninety percent of the taxes you owe for 1988, figured by annualizing income received by the end of the quarter in question. This escape clause is most helpful to people who receive the bulk of their incomes late in the year. Tuesday, Jan. 31, is another important date if you are liable for Social Security taxes on wages paid to household helpers. You are obligated to file Form 942 (Employer`s Quarterly Tax Return for Household Employees) if you paid more than $50 in the calendar quarter ended Dec. 31, 1988, to a household employee (a category that includes baby-sitters, whether adult or teenage, cooks, maids and companions for convalescents or the elderly).
Form 942 must be accompanied by your check for the employer`s share of Social Security taxes (7.51 percent on the first $45,000 of earnings for 1988), as well as any amounts withheld for the employee`s share of Social Security taxes (also 7.51 percent, and a responsibility the law imposes on you, whether or not you subtracted it from wage payments), plus any income taxes that the employee authorized you to withhold. Note, too, that Jan. 31 is the deadline to give each employee a W-2 form that shows wages paid and tax withheld in 1988.
