UNDERPAYMENT PENALTY due to DIVORCE

-UNDERPAYMENT PENALTY due to DIVORCE-

-A taxpayer gets divorced late in 2006 and will be unable to file a joint return for 2006. His ex-wife had no income, so now John Q. Taxpayer is going to owe more tax since he can't file a joint return.

Could this cost him an underpayment penalty? Can he file part of the year as married filing jointly and file the rest of the year as single? Is there any way he could still file jointly for his 2006 taxes?

It looks like John Q Taxpayer may be up the well-known tributary without means of propulsion.

He may be in a higher incremental tax bracket. But maybe he qualifies as Head of Household which could keep his bracket down somewhat.

There is no way he could file two tax returns based on a change in filing status within the year—that require some tax laws and new forms that would boggle the minds of even those geniuses that write the tax laws.

He may or may not owe penalty.

If you did not pay enough tax, either through withholding or by making estimated tax payments, you will have an underpayment of estimated tax and you may have to pay a penalty.

Generally, you will not have to pay a penalty for 2006 if any of the following situations applies.

• The total of your withholding and estimated tax payments was at least as much as your 2005 tax (or 110% of your 2005 tax if your AGI was more than $150,000, $75,000 if your 2006 filing status is married filing separately) and you paid all required estimated tax payments on time.
• The tax balance due on your return is no more than 10% of your total 2006 tax, and you paid all required estimated tax payments on time.
• Your total 2006 tax minus your withholding is less than $1,000.
• You did not have a tax liability for 2006.
• You did not have any withholding taxes and your current year tax less any household employment taxes is less than $1,000.

Special rules apply if you are a farmer or fisherman. See Farmers and Fishermen in chapter 4 of Publication 505 for more information.

He will need to fill out Form 2210 to determine the amount, if any, he will owe as an underpayment penalty. The 2006 Form isn't available, but here is a link to the 2005 Form 2210 . I don't anticipate any significant change in the 2006 version.

LINKS AND REFERENCES, go to: IRS References

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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.