Paying taxes for 1992 is about to get more complex for many Americans thanks to a little-known provision in the unemployment compensation bill that passed into law Nov. 15.
The bill extended unemployment benefits for millions of workers who have been unable to find jobs for more than 26 weeks, when such benefits traditionally run out. But the problem is the complicated way the bill is being funded. Congress will pay for part of the new benefits by making some of you pay your tax bills more quickly.
If you fail to comply, you will be subject to huge underpayment penalties.
Who is affected? "High-income" taxpayers, according to Congress.
However, accountants maintain that middle-class, two-income families will actually be the hardest hit.
Here's how it works: Individuals and couples who earn more than $75,000 annually and have a $40,000 increase in income in one year must make sure their estimated tax payments are at least equal to 90 percent of the tax owed during that year or face severe underpayment penalties. That's a change from the previous rule that said individuals must pay in either 90 percent of the current year's tax or 100 percent of the previous year's tax to avoid underpayment penalties.
(A reminder: Before the year ends, most people will have paid in all of their federal tax through withholding or through quarterly estimated tax payments. But they don't have to file a tax return until the following April. That's when they get a refund if they paid too much or when they write a check to the IRS if they paid too little.) This new rule does not increase the tax owed. It just eliminates the so-called "safe harbor" that says if you paid in an amount equal to last year's tax this year, you won't trigger underpayment penalties no matter how much more you earn.
Seems like a minor change? Not necessarily.
The old system was predictable, said Donald H. Skadden, vice president of taxation at the American Institute of Certified Public Accountants. Even people who had unpredictable income could pay the previous year's amount and be sure that they never got on the wrong side of the IRS _ at least not for underpayment.
Now these individuals must estimate their tax liability, which is almost as time consuming as filing a return, four times a year. And many are likely to find it difficult to pull together all the appropriate information in the 15 days between the end of the quarter and …