Important Changes for 2001

Estimated tax safe harbor for higher income individuals. For installment payments for tax years beginning in 2001, the estimated tax safe harbor for higher income individuals (other than farmers and fishermen) has been modified. If your adjusted gross income is more than $150,000 ($75,000 if married filing a separate return), you will have to deposit the smaller of 90% of your expected tax for 2001 or 110% of the tax shown on your 2000 return to avoid an estimated tax penalty.

Payment of estimated tax by direct debit. Beginning in 2001, you may be able to pay your estimated tax by authorizing an automatic withdrawal from your checking or savings account. For more information, see Payment by Direct Debit under How To Pay Estimated Tax, later.

Important Reminders

Who must pay estimated tax. You will not be liable for the penalty for failure to pay estimated income tax if the total tax shown on your return minus the amount you paid through withholding (including excess social security and railroad retirement tax withholding) is less than $1,000.

Estimated tax safe harbor for higher income individuals. For installment payments for tax years beginning in 2000, the estimated tax safe harbor for higher income individuals (other than farmers and fishermen) was modified. If your adjusted gross income was more than $150,000 ($75,000 if married filing a separate return), you had to deposit the smaller of 90% of your expected tax for 2000 or 108.6% of the tax shown on your 1999 return to avoid an estimated tax penalty (provided your 1999 return covered all 12 months).

Employment taxes on household employees. If you are subject to withholding or must make estimated tax payments anyway, you must include any expected employment (social security, Medicare, and federal unemployment) taxes for household employees when figuring your withholding or estimated tax.

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