2210

[sha]

Can anyone tell me whether or not I need to use 110% of combined AGI in this situation?

Two taxpayers each filed as single in 2004. Each qualified to use 100% of 2004 tax when calculating the 2005 estimates (taxpayer 1) and withholding (taxpayer 2) and so far for 2005 they have done this. They married in July and their combined income will be well over $150K. If they have a balance due (most likely), will they owe a penalty unless we immediately increase the withhholding and estimates to 110% of each of their 2004 tax?

Thank you.

[Bees Knees]

It’s not exactly covered in the regs, but its close enough to base the principal.

Reg. Section 1.6654-2(e)(3) says if you filed a separate return in the prior year and a joint return this year (the year the estimated tax rules apply), then you combine the tax and other facts (such as income from both) on the prior year of each spouse to determine the estimated tax rules for the current year.

It does not say if the separate returns were due to not being married yet, or simply married filing separate returns. It simply says separate returns were filed in the previous year, so I would take that to also include two single taxpayers in the previous year combine their income for the current year to determine estimated tax filing requirements.

That would mean if their combined incomes exceed $150,000, you have the 110% rule kick in.

[sha]

thanks

that's what I got from some readings also....it's NOT good news is it? I was hoping I was wrong....in one way it's lucky(???) though, since it is my son and his new bride ......If it was a client, I probably wouldn't hear about it until Feb! I guess, I will tell them to start withholding lots more.....thanks for your help....