Many retirees make estimated tax payments four times a year. But due to uncertainty in the tax laws in 2012—in particular, the expiration of the patch for the alternative minimum tax—calculating those payments may prove more difficult than usual.

According to the Internal Revenue Service, about 23.4 million U.S. taxpayers make estimated payments. Generally due on the 15th of April, June, September and January, the payments are filed on IRS Form 1040-ES.

Among those who typically use such an approach are retirees and self-employed individuals, who typically earn at least some income that isn’t subject to withholding.

Robert Gard, a certified public accountant at Gard LaFreniere in Atlanta, says about three-quarters of his retired clients make estimated payments. “It’s pretty common among those with income from investments,” he says.

When calculating estimated payments, taxpayers must be careful. Those who underpay by more than 10% can be liable for penalties in the form of an interest charge. The IRS announces the interest charges—determined by a formula set by law—quarterly. Currently, the rate is 3%.

In 2012, the task of estimating tax payments may prove especially difficult. The reason: On Jan. 1, a law expired that shields about 26.7 million Americans from the AMT—a parallel tax system where certain deductions disappear, resulting in higher tax tabs for some. As a result, the tax would apply to about 31 million taxpayers in 2012 instead of 4.3 million last year.

Many tax experts are betting Congress will enact a measure later this year to give those 26 million taxpayers a reprieve by temporarily adjusting the AMT’s rate brackets and exemptions to account for inflation. In 2010, lawmakers passed such an AMT patch late in the year, making it retroactive to Jan. 1.

Still, until Congress acts, “we have to operate under the assumption that a lot more people will owe the AMT in 2012,” says Mr. Gard.

As a result, taxpayers making quarterly estimated payments —the first one of which is due in mid-April—must calculate their obligations under the AMT, he adds. (Due to holidays, the first payment comes due this year on April 17.)

If the amount under the AMT is higher than what they would otherwise owe, they must pay the higher amount, or risk incurring underpayment penalties. (If Congress enacts a retroactive fix, these taxpayers would be eligible for refunds.)

One way around the problem is to use what’s called an IRS safe harbor, says Melissa Labant, director of tax advocacy and professional standards for the American Institute of Certified Public Accountants. Under the safe harbor, underpayment penalties won’t apply to those paying an amount equal to 100% of their prior year’s tax bill. (Singles and couples filing jointly who earn more than $150,000 must pay 110% of 2011′s tab.)

Those using this safe harbor should set aside money to cover their AMT obligations in the event Congress fails to enact a fix, says Ms. Labant.

Write to Anne Tergesen at anne.tergesen@wsj.com

Printed in The Wall Street Journal, page WSJ2

Article source: Wall Street Journal