Should I make estimated payments? My situation: I owed 2,000 in 2020 due to sale of stocks. I was also unemployed, so the $10,200 should reduce what I owe to under 1k...

[Anonymous]

I know I'm not supposed to amend my tax return yet, but due to the 10,200 from unemployment being reduced from AGI, I think I'll end up owing less than 1,000 for 2020. I don't anticipate owing money for 2021, but is it risky to not pay the quarterly payments? Could I be charged a fine?

Follow-up question: My AGI was around 85K before the 10,200 is excluded. I already filed and got a partial American Opportunity Credit for going to school. Since my AGI should change to under 80K, I think I should get the full AOC credit. Would I have to amend my return to get that increase?

[ColeenD3]

If you think you are safe, you do not need to make estimated payments. If you do end up owing, yes, you will probably be charged a penalty. If you wish, just make one smaller payment early and omit the rest.

Just because the unemployment has been deemed excludable, that does not mean it will be a MAGI adjustment for other purposes. The Bill reads:

(1) IN GENERAL.—In the case of any taxable year beginning in 2020, if the adjusted gross income of the taxpayer for such taxable year is less than $150,000, the gross income of such taxpayer shall not include so much of the unemployment compensation received by such taxpayer (or, in the case of a joint return, received by each spouse) as does not exceed $10,200. “(2) APPLICATION.—For purposes of paragraph (1), the adjusted gross income of the taxpayer shall be determined—

“(A) after application of sections 86, 135, 137, 219, 221, 222, and 469, and

“(B) without regard to this section.”.

Code 222

[Anonymous]

Thank you for that information, that is helpful.

The language is confusing, as to whether this reduces my AGI by 10,200, or just my taxable income. It would make a big difference for me, as I'd also get a partial stimulus payment from the American Rescue Plan (since my AGI was over 80K, I was excluded, and this could bring me into the 75,000-80,000 threshold). 

[Irene2805 · Accepted solution]

Concerning estimated payments, you should go through the calculations in TurboTax for estimated payments and entered your estimates of 2021 income and withholding.  This will help you decide whether you should make estimated payments.

The section of the bill quoted by ColleenD3 above, states that the unemployment benefits of $10,200 will not be included in your gross income.  According to the IRS: "Adjusted Gross Income (AGI) is defined as gross income minus adjustments to income.  Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account."

Therefore, your AGI will also be reduced by the $10,200, just like the gross income.

[Anonymous]

Thanks for that information! My 2021 income will be hard to predict, so I think I'll just pay the quarterly estimated payments. Worst case I'll get that money back when I file next year.

That is what I thought about AGI; it's good to have clarification. I guess I'm going to wait until after the tax season is over to see if I can get additional money from the AOC, and if so file an amendment.

[DawnC]

Sounds like a good plan.   You can always pay the first and/or second payment and adjust or not pay the remaining ones if things change throughout the year.   They are not required and it is better to overpay and get the refund later than to underpay and possibly get hit with a penalty later.   

The late filing penalty is much larger than the penalty for late payments, so as long as you file on time, you can gauge the timing and amounts of your income to determine whether or not you need to make the estimated payments.   

Why did 1040-ES estimated tax vouchers print out? Do I need them?