IRS Issues Regulations on 2009 Reduced Estimated Tax Options

The IRS on Friday released temporary and proposed regulations relating to reduced estimated income tax payments for qualified individuals with small business income in 2009 (TD 9480 and REG-117501-09). The regulations provide guidance on who is a qualified individual and what is a small business for these purposes.

The American Recovery and Reinvestment Act of 2009 reduced the amount of estimated tax that certain individuals must pay for tax years beginning in 2009 from either 100% or 110% of the tax shown on the preceding year’s tax return to 90% (IRC § 6654(d)(1)(D)). The temporary regulations explain who is a qualified individual for these purposes.

A qualified individual is any individual whose adjusted gross income on the previous year’s tax return is less than $500,000 and who certifies that more than 50% of the gross income shown on that return is income from a small business. For married taxpayers filing separately, the $500,000 limit is reduced to $250,000.

Income from a small business is defined as income from a business with fewer than 500 employees in 2008. The temporary regulations specify that it must be a bona fide business and the individual must be an owner.

To certify that he or she is eligible for the reduced estimated taxes, the temporary regulations say the individual must file a certification with the IRS “in the manner and at the time prescribed in forms, publications, or other guidance” (Temp. Treas. Reg. § 1.6654-2T(a)(1)(ii)(D)). One way individuals can make this certification is to check box F in Part II of Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts.