How to Pay Estimated Income Taxes and Avoid IRS Penalties

Taxpayers must pay their taxes "as they go."  For many taxpayers, their income taxes are withheld from their paychecks.  For taxpayers that don't have any withholding, they will need to make estimated tax payments.

Estimated tax payments are made on IRS Form 1040-ES.  In Connecticut they are made on Form CT-1040-ES.

The due dates for estimated income taxes are:

  • April 15
  • June 15
  • September 15
  • January 15

Taxpayers that live in Connecticut should mail their federal estimated tax payment to:

Internal Revenue Service
P.O. Box 37007
Hartford, CT 06176

Taxpayers that live in Connecticut should mail their state estimated tax payment to:

Department of Revenue Services
P. O. Box 2932
Hartford, CT 06104

As with all communications with the tax authorities, we recommend you send these certified mail, return receipt requested.

Taxpayers may want to pay their estimated Connecticut taxes due in January, 2012 in December, 2011.  This may allow them to deduct this payment.  To get a tax deduction for this payment, the taxpayer must itemize their deductions.  Taxpayers are allowed to take the higher of the standard deduction or their itemized deductions. Be cautious however. For taxpayers subject to the Alternative Minimum Tax ("AMT"), there is no advantage to accelerating the January estimated tax payment into December.  State income taxes are an add back for purposes of the AMT and therefore are not deductible in calculating this tax.

To avoid any underpayment penalties, taxpayers must pay in either 100% of the prior year’s tax or 90% of the current year’s tax.  For 2011, taxpayers whose prior year adjusted gross income exceeded $150,000, they must pay in either, 110% of the prior year tax or 90% of the current year tax. Calculating 90% of the expected current year tax can be tricky. 

To calculate if there is a penalty for underpayment of tax, complete IRS Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts.

For most taxpayers if they have the opportunity to have their income taxes withheld, this is usually easier for them. Withholding can be done on their wages which is reported on Form W-2.  Retirees may want to have withholding on their IRA or pension which is Form 1099-R.  People receiving Social Security can also elect to have federal income tax withheld. Withholding can be implemented or adjusted by filing a Form W-4 for employees or a Form W-4P for IRA's, pensions and social security.

ACTION ITEM: Taxpayers need to project their income and pay estimated taxes to avoid any underpayment penalties.

Thomas F. Scanlon, CPA, CFP®

Tom Scanlon has over thirty years experience in public accounting with an extensive background in the areas of financial, tax, and estate planning. He prides himself on providing in-depth and customized solutions to privately held businesses and their owners. He is a Certified Public Accountant and Certified Financial Planner®. Tom is a frequent speaker for area organizations and has  recently been quoted on CNBC, Fox 61 News and AARP's blog. Tom also has been a guest columnist for numerous publications including The Wall Street Journal, Barron's, Money Magazine, The Hartford Courant, The Hartford Business Journal, and The New Haven Register. He is a member of the American Institute of Certified Public Accountants, the Connecticut Society of Certified Public Accountants, and the Financial Planning Association. Active in the community, Tom supports a variety of not-for-profit organizations.

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One comment on “How to Pay Estimated Income Taxes and Avoid IRS Penalties
  1. Gary Trager says:

    This is my first time I have visited here. I found a lot of interesting information in your blog. Keep up the good work.

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