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Public Law 1998, c.106, amended the gross income tax provisions on estimated tax, effective for tax years beginning on or after January 1, 1999. Under the recent amendments, a taxpayer is required to make estimated tax payments if the taxpayer's tax in excess of withholdings and other "credits" is $400. Prior to being amended, the threshold was $100.
In addition, the amendments impose two new requirements. One is a requirement that estates and trusts pay estimated tax (other than estates or trusts meeting the two-year and other limitations in I.R.C. §6654(l)(2).) The other new requirement concerns a change to the "last year's tax" safe harbor, for taxpayers with taxable gross income exceeding $150,000. Effective for tax year 1999, if income after deductions as defined exceeds $150,000 ($75,000 for married, filing separate), the "last year's tax" safe harbor exception to estimated tax penalties is stated as 110% of last year's tax, instead of 100%. See N.J.S.A. 54A:9-6(d)(3) as amended by P.L. 1998, c.106.
Public Law 1998, c.106, also made a technical amendment to the statutory provisions on calculating estimated tax penalties and interest. Prior to the amendment, for purposes of assessing penalties and interest, the estimated tax underpayment was based on the difference between what was actually paid and 80% of the tax shown on the current year's return. The recent amendment states that the amount of the underpayment is based on the difference between what was actually paid and either 100% of last year's tax or 80% of the current year's tax, whichever is the smaller. See N.J.S.A. 54A:9-6(c), as amended by P.L. 1998, c.106.
The amendments to N.J.S.A. 54A:9-6(d) concerning the safe harbor of 110% for higher income taxpayers are not reflected in the amendments concerning the calculation of estimated tax penalties and interest. Until N.J.S.A. 54A:9-6 is further clarified, the Division of Taxation will impose estimated tax penalties and interest only as expressly authorized under N.J.S.A. 54A:9-6(c), as amended by P.L. 1998, c.106.
Division of Taxation