Estimated Tax Rules
Changed for Some Taxpayers

WASHINGTON - Certain individuals must use new rules to compute their estimated tax payments starting the second calendar quarter of 1992, the Internal Revenue Service said today.

IRS said while the new rules do not increase annual tax liability, they may increase the size of the estimated tax payments made for the last three quarters of the year.

The change, enacted as part of the Emergency Unemployment Compensation Act of 1991, generally affects only taxpayers who have:

• more than $75,000 of adjusted gross income,

• an increase in income of more than $40,000 over last year and,

• made estimated tax payments or were assessed an estimated tax penalty in any of the last three years.

These taxpayers may not be able to compute their second, third and fourth quarterly estimated tax payments based upon their prior year tax. They may base their estimated tax payment for the first quarter on their prior year tax.

IRS said all farmers and fishermen are exempt from the new rules and most other individual taxpayers will not be affected. They may continue to base their estimated tax payments on either 90% of current year tax of 10% of prior year tax.

Tax withholding on wages is the most common method that people use to ensure that sufficient tax is paid throughout the year. Quarterly estimated tax payments generally are made by people who have income not subject to withholding.

IRS has revised Publication 505, "Tax Withholding and Estimated Tax", available by calling 1-800-TAX-FORM. The publication explains how to determine if the new estimated tax payment rules apply and the methods available for computing payments under the new rules.

NOTE: Attached is a flow chart taxpayers can use to determine if the new estimated tax payment rules apply to them.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~             ~~~~~~~~~~~~~~~~~~~~~
Did you make estimated tax                  Were you charged an
payments in 1991, 1990, or 1989?     NO     estimated tax penalty
(Withholding by your employer or  ------->  for 1991, 1990, or
a credit from your prior year's             1989?
tax return are NOT considered               ~~~~~~~~~~~~~~~~~~~~~
estimated tax payments.)                   -          -
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~    YES     -          -
      YES  -                               -          -  NO
           -                             < -          -
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~                       -
Do you expect your adjusted gross         NO          -
income for 1992 to be more than   ------------------> -
$75,000 ($37,500, if married                          -
filing separately)?                                   -
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~                       -
      YES  -                                          -
           -                                          -
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~                       -
Do you expect your modified ad-                       -
justed gross income* for 1992 to          NO          -
exceed your adjusted gross income ------------------> -
for 1991 by more than $40,000                         -
($20,000 if married filing                            -
separately)?                                          -
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~                       -
      YES  -                                          -
           -                                          -
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~             ~~~~~~~~~~~~~~~~~~~~~
You may be subject to the new               You are NOT subject to
rules during 1992. See Publication          the new rules during
505 for details.                            1992.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~             ~~~~~~~~~~~~~~~~~~~~~

*Determine your modified adjusted gross income by making the following adjustments to your 1992 expected adjusted gross income:

1. Do not include any gain from an involuntary conversion or from the sale of your principal residence.

2. Use your 1991 pass-through items instead of your expected 1992 pass-through items from:

a. Any partnership in which you are NOT a general partner AND own less than a 10% interest, and

b. Any S corporation in which you own less than 10% of the stock (by vote or value).

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