Final regs. clarify estimated income tax payment procedures.

Final Sec. 6654 regulations (TD 9224, 9/1/05) clarify the treatment of joint estimated tax payments and the determination of estimated tax payments. The final rules also clarify estimated tax payment requirements for nonresident aliens (NRAs).

Continuity Requirement

Final Regs. Sec. 1.6654-5(a) provides guidelines for determining estimated tax. When projecting taxable income for estimated tax purposes, taxpayers have to assume that all income streams will remain constant throughout the year. If taxpayers are employed, for example, they have to presume that their wages will continue at the same rate during the year, unless they have reason to believe otherwise. Other income streams, from interest, dividends, rents, royalties and estates and masts, for example, should be included in the taxpayer's estimated income according to the regularity of the income in the past. For example, presumably, Microsoft shareholders would not be required to include a 2004 special dividend for 2005 estimated tax purposes.

Joint Filers

Under Regs. Sec. 1.6654-2(e)(5), joint filers may make a joint payment of estimated tax, unless they are separated under a decree of divorce or of separate maintenance. The joint payment has to be made based on the couple's aggregate income, unless estimated self-employment (SE) taxes are required. If so, the SE tax has to be computed on each spouse's separate estimated SE income.

Similar to removed Regs. Sec. 1.6015(b)-1(b), if taxpayers pay joint estimated taxes, but later file separate returns, the payments can be divided in any mutually agreed-on manner. If they cannot agree, however, the estimates have to be allocated according to the ratio of the tax liability of each taxpayer to the whole, including any SE tax.

A surviving taxpayer would follow similar rules if joint estimated payments were made and a spouse died later. Under Regs. Sec. 1.6654-2(e)(7)(ii), any joint payments made can be divided according to the agreement of the surviving spouse and the decedent's legal representative, if separate returns are filed. Otherwise, the payments have to be allocated according to the taxes due for the separately filed returns, including SE taxes.

NRAs

Under Regs. Sec. 1.6654-6(a), NRAs have to use a filing status of either single or married filing separately in determining whether they are required to estimate tax, unless a Sec. 6013(g) or (h) election is in effect for the tax year. Under Sec. 6013(g), an NRA married to a U.S. citizen can elect to be treated as a resident for income tax and withholding tax purposes; under Sec. 6013(h), an NRA who became a resident during the year and is married to a U.S. citizen could elect the same status.

FROM SUSAN DAY, CPA, GRAY, GRAY & GRAY, LLP, WESTWOOD, MA