Who Must Make Estimated Tax Payments?

If you had a tax liability for 2000, you may have to pay estimated tax for 2001.

General rule. You must make estimated tax payments for 2001 if you expect to owe at least $1,000 in tax for 2001, after subtracting your withholding and credits, and you expect your withholding and credits to be less than the smaller of:

1. 90% of the tax to be shown on your 2001 tax return, or
2. 100% of the tax shown on your 2000 tax return. Your 2000 tax return must cover all 12 months.

Exceptions. There are exceptions to the general rule for farmers, fishermen, and certain higher income taxpayers.

Farmers and fishermen. If at least two-thirds of your gross income for 2000 or 2001 is from farming or fishing, substitute 66 2/3% for 90% in (1) above.

For definitions of gross income from farming and gross income from fishing, see Farmers and Fishermen later under When To Pay Estimated Tax.

Higher income taxpayers. If your adjusted gross income (AGI) for 2000 was more than $150,000 ($75,000 if your filing status for 2001 is married filing a separate return), substitute 110% for 100% in (2) above. This rule does not apply to farmers and fishermen.

For 2000, AGI is the amount shown on Form 1040, line 34; Form 1040A, line 19; and Form 1040EZ, line 4.

Figure B: Do You Have To Pay Estimated Tax Algorithm

Note. If all your income will be subject to income tax withholding, you probably do not need to make estimated tax payments.

Example 2.1. To figure whether she should pay estimated tax for 2001, Jane, who files as head of household, uses the following information.

Jane uses Figure B. Jane's answer to the chart's first question is YES -- she expects to owe at least $1,000 for 2001 after subtracting her withholding from her expected tax ($12,000 - $10,900 = $1,100). Her answer to the chart's second question is also YES -- she expects her income tax withholding ($10,900) to be at least 90% of the tax to be shown on her 2001 return ($12,000 x 90% = $10,800). Jane does not need to pay estimated tax.

Example 2.2. The facts are the same as in Example 2.1, except that Jane expects only $8,500 tax to be withheld in 2001. Because that is less than $10,800, her answer to the chart's second question is NO.

Jane's answer to the chart's third question is also NO -- she does not expect her income tax withholding ($8,500) to be at least 100% of the tax shown on her 2000 return ($11,000). Jane must make estimated tax payments for 2001.

Example 2.3. The facts are the same as in Example 2.2, except that the tax shown on Jane's 2000 return was $8,000. Because she expects to have more than $8,000 withheld in 2001, her answer to the chart's third question is YES. Jane does not need to pay estimated tax for 2001.

Aliens. Resident and nonresident aliens may also have to make estimated tax payments. Resident aliens should follow the rules in this publication, unless noted otherwise. Nonresident aliens should get Form 1040-ES(NR), U.S. Estimated Tax for Nonresident Alien Individuals.

Avoiding estimated tax. If you receive salaries and wages, you can avoid having to make estimated tax payments by asking your employer to take more tax out of your earnings. To do this, file a new Form W-4 with your employer. See chapter 1.

No tax liability last year. You do not have to pay estimated tax for 2001 if you meet all three of the following conditions.

1. You had no tax liability for your 2000 tax year.
2. You were a U.S. citizen or resident for the whole year.
3. Your 2000 tax year covered a 12-month period.

You had no tax liability for 2000 if your total tax (defined later under Required Annual Payment) was zero or you did not have to file an income tax return.

Married taxpayers. To figure whether you must make estimated tax payments, apply the rules discussed here to your separate estimated income. If you can make joint estimated tax payments, you can apply these rules on a joint basis.

You and your spouse can make joint payments of estimated tax even if you are not living together.

You and your spouse cannot make joint estimated tax payments if you are legally separated under a decree of divorce or separate maintenance. Also, you cannot make joint estimated tax payments if either spouse is a nonresident alien or if you have different tax years.

Whether you and your spouse make joint estimated tax payments or separate payments will not affect your choice of filing a joint tax return or separate returns for 2001.

2000 separate returns and 2001 joint return. If you plan to file a joint return with your spouse for 2001, but you filed separate returns for 2000, your 2000 tax is the total of the tax shown on your separate returns. You filed a separate return for 2000 if you filed as single, head of household, or married filing separately.

2000 joint return and 2001 separate returns. If you plan to file a separate return for 2001, but you filed a joint return for 2000, your 2000 tax is your share of the tax on the joint return. You file a separate return for 2001 if you file as single, head of household, or married filing separately. To figure your share, first figure the tax both you and your spouse would have paid had you filed separate returns for 2000 using the same filing status as for 2001. Then multiply your joint tax liability by the following fraction:

Example 2.4. Joe and Heather filed a joint return for 2000 showing taxable income of $48,000 and a tax of $7,747. Of the $48,000 taxable income, $40,000 was Joe's and the rest was Heather's. For 2001, they plan to file married filing separately. Joe figures his share of the tax on the 2000 joint return as follows:

Estates and trusts. Estates and trusts also must make estimated tax payments. However, estates (and certain grantor trusts that receive the residue of the decedent's estate under the decedent's will) are exempt from paying estimated tax for the first two years after the decedent's death.

Estates and trusts must use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.

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