Or. Admin. Code § 150-316-0493

Current through Register Vol. 63, No. 11, November 1, 2024

Section 150-316-0493 - Required Installments for Estimated Tax

(1) Definitions.

(a) "Required annual payment" means the total amount of required installment payments for the tax year.

(b) "Required installment payment" means the amount of the payment that is due for each of the four payment periods during the tax year.

(2) There are two steps to determine estimated tax payments. The first step is to determine the required annual payment, and the second step is to determine the amount of the required installment payments.

(3) Determination of required annual payment amount.

(a) The required annual payment is the lesser of:

(A) Ninety percent of the tax shown on the return for the taxable year (or, if no return is filed, ninety percent of the tax for such year); or

(B) One hundred percent of the tax shown on the prior year's return, if qualified. This is sometimes referred to as 'safe harbor.' To use the prior year's tax to determine the required annual payment, the prior year's return must be filed before the current year's return, and the prior tax year must consist of 12 months.

Example 1: Amanda's adjusted gross income on her 2012 return was $30,000 and her Oregon tax liability after credits was $2,000. Amanda's 2013 Oregon tax liability after credits is $2,800. Ninety percent of the 2013 tax after credits is $2,520. She can use the prior year tax and pay 2013 estimated tax payments equal to 100 percent of her 2012 tax liability ($500 on each installment due date).

(b) A part-year resident may use the prior year tax unless disqualified for a reason described in this section.

Example 2: Michael moved to Oregon from California on July 1, 2012 and filed as a part-year resident. His 2012 Oregon tax after credits was $1,500. Even though his 2012 return shows 6 months of Oregon residency, his taxable year for 2012 was 12 full months. He qualifies to use safe harbor (prior year tax) to determine his required annual payment for 2013. This is less than 90 percent of his 2013 tax, so he will use that to determine his required annual payment. His required installment payments in 2013 are $375 for each period (25% of $1,500) for regular installment payments, or the applicable percentage if using the annualized income installment payments, in order to avoid interest on underpayment of estimated tax for 2013.

(c) Use the amounts from the original return to determine the payments unless an amended return was filed before the due date, including extensions. In that case, use the amounts from the amended return to determine the required annual payment. Amended returns filed after the due date of the original return, including extensions, cannot be used to determine the required annual payment.

Example 3: Aliyah's original tax return showed a tax liability after all credits of $1,400. Aliyah did not file an extension. In July, the return was amended and the tax liability after credits was $1,200. Aliyah bases her required annual payment on the $1,400 tax shown on the original return.

Example 4: Shaylee's original tax return was filed June 29, 2012 with an approved extension to October 15, 2012 showing a tax liability of $1,975. On October 09, 2012 the return was amended and the tax liability was reduced to $1,245. In 2013, if Shaylee chooses to use the prior year's tax, the required annual payment is based on the $1,245 tax shown on the amended return filed within the extension period.

(d) Estimated tax payments are not required if the amount of the required annual payment minus Oregon tax withheld is less than $1,000. For information about additional exceptions, see ORS 316.563 through 316.588, and OAR 150-316-0475 through 150-316-0491.

Example 5: Brandon and Michelle are married and have three children. Brandon is self-employed. Michelle works part-time. They want to know if they are required to make estimated tax payments. Their estimated 2013 adjusted gross income is $75,000, their estimated net itemized deductions are $13,500 and they expect to have $630 withheld from Michelle's wages.[Table not included. See ED. NOTE.]

(4) Determination of the required installment payment amount.

(a) The required installment payment for each of the four tax periods is the lesser of the payment due under one of the following two methods for determining the amount of an installment payment:

(A) Regular Installment: The required installment payment for each period is 25 percent of the required annual payment.

(B) Annualized Income Installment: The required annualized income installment payment is the "applicable percentage" of the required annual payment for the taxable year minus the amount of any required installments paid for prior periods during the tax year. The applicable percentages are:

(i) 22.5% for the first period;

(ii) 45% for the first and second periods;

(iii) 67.5% for the first, second and third periods; and

(iv) 90 % for the first through fourth periods.

(b) If the taxpayer shows that the annualized income installment for a period (as determined from the annualized income worksheet) is less than the regular installment for that period, the amount of the required installment payment for that period is the annualized income installment.

(c) If the annualized income installment method is used to determine a required installment payment, the difference between that amount and the amount that would have been due if the regular installment method had been used must be added to the required installment payment for the next succeeding period.

(d) Generally, credits based on income or deductions are figured on the annualized income or deductions for each period.

(e) Credits computed as a percentage of income must be based upon the annualized income for the period.

(f) Credits that use income as a basis for determining an applicable percentage or for otherwise limiting the allowable credit must be based upon the total annualized income before allocation to the installment period.

Example 6: Richard and Terrie are married with no dependents. They had adjusted gross income of $14,000 for the period of January 1, 2013 to March 31, 2013. For the same period, they had itemized deductions of $2,810. For the period of January 1, 2013to May 31, 2013, they had adjusted gross income of $27,000 and itemized deductions of $4,300. For the period of January 1, 2013 to August 31, 2013, they had adjusted gross income of $41,000 and itemized deductions of $6,300. For the period January 1, 2013 to December 31, 2013, they had adjusted gross income of $69,000 and itemized deductions of $14,100. Their 2012 return showed tax after credits of $3,155. For purposes of computing the required installment, the following computations are necessary: Actual income from January 1 to March 31 x 4. Actual income from January 1 to May 31 x 2.4. Actual income from January 1 to August 31 x 1.5. Actual income from January 1 to December 31 x 1.0. First Estimated Tax Payment.[Table not included. See ED. NOTE.]

(g) Pass-through entity (PTE) income may be annualized following the methodology provided under Internal Revenue Code (IRC) section 6654, Treasury Regulation section 1.6654-2 and all other related regulations and rules, if annualizing more accurately reflects the fluctuations in income to the shareholder from the entity. Solely for purposes of annualizing, the shareholder or partner may recognize the distributable share of income or loss from the PTE for the months in the PTE's taxable year ending within the taxable year of the shareholder or partner that precede the month in which the estimated tax installment is due.

Example 7: Ed's Catering, Inc. (ECI) is a calendar year S corporation that is in the catering business. ECI has limited business outside of the busy holiday party season. The majority of its business occurs in October, November, and December. In 2013, ECI's income was $30,000 from January 1-March 31; $25,000 from April 1-June 30; $20,000 from July 1-September 30; and $450,000 October 1 to December 31. An ECI shareholder who receives most of his or her income during the last quarter in ECI's tax year may choose to use the annualized income installment method for purposes of determining estimated tax payments.

Example 8: Wedding Planner's, Inc. (WPI), an S corporation, has a fiscal year ending July 31st. The majority of its business occurs in May, June, and July. In fiscal year beginning 2012, WPI's income was $30,000 from August 1, 2012-October 31, 2012; $25,000 from November 1, 2012-January 31, 2013; $20,000 from February 1, 2013-April 30, 2013; and $450,000 May 1, 2013 to July 31, 2013. The shareholder must include the income attributable to WPI as follows when determining the required installment for the shareholder's calendar year 2013 using the annual method:

The 1st required installment is based on PTE income/loss from August 1st of the prior year to March 31st. Date payment is due is April 15th. The 2nd required installment is based on PTE income/loss from August 1st of the prior year to May 31st. Date payment is due is June 15th. The 3rd required installment is based on PTE income/loss from August 1st of the prior year to July 31st. Date payment is due is September 15th. The 4th required installment would already include the entire amount from the PTE received in the tax year of the shareholder but should not increase the underpayment for the 4th quarter since it was fully included by the third payment.

Or. Admin. Code § 150-316-0493

RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 8-2001, f. & cert. ef. 12-31-01; REV 3-2006, f. & cert .ef. 7-31-06; REV 6-2008, f. 8-29-08, cert. ef. 8-31-08; REV 16-2010, f. 12-17-10, cert. ef. 1-1-11; REV 1-2014, f. & cert. ef. 7-31-14; Renumbered from 150-316.587(8)-(A), REV 65-2016, f. 8-15-16, cert. ef. 9/1/2016; REV 5-2017, f. 5-31-17, cert. ef. 6/1/2017

Tables referenced are not included in rule text. Click here for PDF copy of table(s).

Stat. Auth.: ORS 305.100, 316.587

Stats. Implemented: ORS 316.587