Special Rules for Farmers and Fishermen and Higher Income Taxpayers

There are special rules for farmers, fishermen, and certain higher income taxpayers.

Farmers and Fishermen

If at least two-thirds of your gross income for 2001 or 2002 is from farming or fishing, substitute 662/3% for 90% in 2a) under General Rule, earlier.

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 2001 was more than $150,000 ($75,000 if your filing status for 2002 is married filing a separate return), substitute 112% for 100% in 2b) under General Rule, earlier. This rule does not apply to farmers and fishermen.

For 2001, AGI is the amount shown on Form 1040, line 34; Form 1040A, line 20; and Form 1040EZ, line 4.

Figure B: Do You Have To Pay Estimated Tax Algorithm

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.

Estimated tax payments not required.   You do not have to pay estimated tax for 2002 if you meet all three of the following conditions.

1. You had no tax liability for 2001.
2. You were a U.S. citizen or resident for the whole year.
3. Your 2001 tax year covered a 12-month period.

You had no tax liability for 2001 if your total tax (defined later under Required Annual Payment) was zero or you did not have to file an income tax return.

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.

How To Figure Estimated Tax

To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.

When figuring your 2002 estimated tax, it may be helpful to use your income, deductions, and credits for 2001 as a starting point. Use your 2001 federal tax return as a guide. You can use Form 1040-ES to figure your estimated tax.

You must make adjustments both for changes in your own situation and for recent changes in the tax law. For 2002, there are several changes in the law. These changes are discussed under Important Changes for 2002 at the beginning of this publication. For information about these and other changes in the law, get Publication 553, Highlights of 2001 Tax Changes, or visit the IRS Web Site at www.irs.gov. Form 1040-ES includes a worksheet to help you figure your estimated tax. Keep the worksheet for your records. Example 2.9 illustrates the use of the worksheet. A blank worksheet appears later in this chapter.

Expected Adjusted Gross Income

Your expected adjusted gross income for 2002 (line 1 of the 2002 Estimated Tax Worksheet) is your expected total income minus your expected adjustments to income.

Total income.   Include in your total income all the income you expect to receive during the year, even income that is subject to withholding. However, do not include income that is tax exempt.

Total income includes all income and loss for 2002 that, if you had received it in 2001, would have been included in the total on line 22 of Form 1040, line 15 of Form 1040A, or line 4 of Form 1040EZ. When figuring your net earnings from self-employment, be sure to use only 92.35% of your total net profit from self-employment.

Social security and railroad retirement benefits. If you expect to receive social security or tier 1 railroad retirement benefits during the year, use Worksheet 2.1 to figure the amount of expected taxable benefits you should include on line 1 of the 2002 Estimated Tax Worksheet.

Worksheet 2.1

1.	Enter your expected social security and railroad retirement benefits
2.	Enter one-half of line 1
3.	Enter your expected total income. Do not include any social security and railroad retirement benefits, nontaxable interest income, nontaxable IRA distributions, or nontaxable pension distributions
4.	Enter your expected nontaxable interest income
5.	Add lines 2, 3, and 4
6.	Enter your expected adjustments to income except any student loan interest deduction
7.	Subtract line 6 from line 5
8.	Enter $25,000 ($32,000 if you expect to file married filing a joint return; $0 if you expect to file married filing a separate return and expect to live with your spouse at any time during the year)
9.	Subtract line 8 from line 7. If zero or less, stop here. Do not include any social security or railroad retirement benefits on line 1 of your 2002 Estimated Tax Worksheet
10.	Enter $9,000 ($12,000 if you expect to file married filing a joint return; $0 if you expect to file married filing a separate return and expect to live with your spouse at any time during the year)
11.	Subtract line 10 from line 9. If zero or less, enter -0-
12.	Enter the smaller of line 9 or line 10
13.	Enter one-half of line 12
14.	Enter the smaller of line 2 or line 13
15.	Multiply line 11 by 85% (.85). If line 11 is zero, enter -0-.
16.	Add lines 14 and 15
17.	Multiply line 1 by 85% (.85)
18.	Enter the smaller of line 16 or line 17. This is the amount of your expected taxable social security and railroad retirement benefits. Include this amount in the total on line 1 of your 2002 Estimated Tax Worksheet

Adjustments to income.   Be sure to subtract from your expected total income all of the adjustments you expect to take on your 2002 tax return. If you are using your 2001 return as a guide and filed Form 1040, your adjustments for 2001 were on lines 23-31a. If you filed Form 1040A, your 2001 adjustments were on lines 16 and 17.

Self-employed. If you expect to have income from self-employment, use the following worksheet to figure your expected self-employment tax. The result on line 10 of the worksheet is your deduction for one-half of your self-employment tax. Include this amount in the adjustments you subtract from your total income to arrive at your expected AGI. If you file a joint return and both you and your spouse have net earnings from self-employment, you must each complete a separate worksheet.

Worksheet 2.2

1.	Enter your expected income and profits subject to self-employment tax
2.	Multiply the amount on line 1 by .9235
3.	Multiply the amount on line 2 by .029
4.	Social security tax maximum income	$84,900
5.	Enter your expected wages (if subject to social security tax)
6.	Subtract line 5 from line 4
	Note. If line 6 is zero or less, enter -0- on line 8 and skip to line 9.
7.	Enter the smaller of line 2 or line 6
8.	Multiply the amount on line 7 by .124
9.	Add line 3 and line 8. Enter the result here and on line 11 of your 2002 Estimated Tax Worksheet
10.	Multiply the amount on line 9 by .50. This is your deduction for one-half your self-employment tax.

Expected Taxable Income

Reduce your expected adjusted gross income for 2002 by either your expected itemized deductions or your standard deduction and by your exemptions (lines 2 through 5 of the 2001 Estimated Tax Worksheet).

Itemized deductions.   If you expect to claim itemized deductions on your 2002 tax return, subtract them from your expected adjusted gross income.

Itemized deductions are the deductions that can be claimed on Schedule A of Form 1040.

Reduction of itemized deductions. For 2002, your total itemized deductions may be reduced if your adjusted gross income (AGI) is more than $137,300 ($68,650 if married filing separately). If you expect your AGI to be more than that amount, use the following worksheet to figure the amount to enter on line 2 of the 2002 Estimated Tax Worksheet.

Worksheet 2.3

1.	Enter the estimated total of your itemized deductions
2.	Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses
3.	Subtract line 2 from line 1
	Note. If the amount on line 3 is zero, stop here and enter the amount from line 1 of this worksheet on line 2 of the 2002 Estimated Tax Worksheet.
4.	Multiply the amount on line 3 by .80
5.	Enter the amount from line 1 of the 2002 Estimated Tax Worksheet
6.	Enter $137,300 ($68,650 if married filing separately)
7.	Subtract line 6 from line 5
8.	Multiply the amount on line 7 by .03
9.	Enter the smaller of line 4 or line 8
10.	Subtract line 9 from line 1. Enter the result here and on line 2 of the 2002 Estimated Tax Worksheet

Standard deduction.   If you expect to claim the standard deduction on your 2002 tax return, subtract it from your expected adjusted gross income. Use the 2002 Standard Deduction Tables at the end of this chapter to find your standard deduction.

No standard deduction.   The standard deduction for some individuals is zero. Your standard deduction will be zero if you:

1. File a separate return and your spouse itemizes deductions,
2. Are a nonresident alien, or
3. Make a return for a period of less than 12 months because you change your accounting period.

Exemptions.   After you have subtracted either your expected itemized deductions or your standard deduction from your expected adjusted gross income, reduce the amount remaining by $3,000 for each exemption you expect to take on your 2002 tax return (lines 4 and 5 of the 2002 Estimated Tax Worksheet). If another person (such as your parent) can claim an exemption for you on his or her tax return, you cannot claim your own personal exemption. This is true even if the other person will not claim your exemption or the exemption will be reduced or eliminated under the phaseout rule.

Phaseout.   For 2002, your deduction for personal exemptions is phased out if your adjusted gross income (AGI) falls within the following brackets.

Table 2.1

Single	$137,300	-	$259,800
Married filing jointly or qualifying widow(er)	$206,000	-	$328,500
Married filing separately	$103,000	-	$164,250
Head of household	$171,650	-	$294,150

If the amount on line 1 of your 2002 Estimated Tax Worksheet is more than the highest amount in the bracket for your filing status, enter -0- on line 4 of your 2002 Estimated Tax Worksheet. If your AGI will fall within the bracket, use the following worksheet to figure the amount to enter on line 4 of your 2002 Estimated Tax Worksheet.

Worksheet 2.4

1.	Multiply $3,000 by the number of exemptions you plan to claim
2.	Enter the amount from line 1 of your 2002 Estimated Tax Worksheet
3.	Enter:
	$137,300 if single
	$206,000 if married filing jointly or qualifying widow(er)
	$103,000 if married filing separately
	$171,650 if head of household
4.	Subtract line 3 from line 2
5.	Divide the amount on line 4 by $2,500 ($1,250 if married filing separately). If the result is not a whole number, increase it to the next whole number
6.	Multiply the number on line 5 by .02. Enter the result as a decimal, but not more than 1
7.	Multiply the amount on line 1 by the decimal on line 6
8.	Subtract line 7 from line 1. Enter the result here and on line 4 of your 2002 Estimated Tax Worksheet

Expected Taxes and Credits

After you have figured your expected taxable income, follow the steps below to figure your expected taxes, credits, and total tax for 2002. Most people will have entries for only a few of these steps. However, you should check every step to be sure that you do not overlook anything.

Blank 2001 Estimated Tax WorksheetForm: 1040–ES Blank worksheet

Step 1.   Figure your expected income tax (line 6 of the 2002 Estimated Tax Worksheet). Use the 2002 Tax Rate Schedules at the end of this chapter or in the instructions to Form 1040-ES to figure your expected income tax. You must use a special method to figure tax on the income of a child under age 14 who has more than $1,500 of investment income. See Tax on Investment Income of Child Under 14 in Publication 929, Tax Rules for Children and Dependents.

Tax on net capital gain.   The regular income tax rates for individuals do not apply to a net capital gain. Instead, your net capital gain is taxed at a lower maximum rate.

The term net capital gain means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.

The maximum rate may be 8%, 10%, 20%, 25%, or 28%, or a combination of those rates. Use Worksheet 2.5 to figure your tax if you have capital gain.

Worksheet 2.5

1.	Enter the amount from line 5 of your 2002 Estimated Tax Worksheet
2.	Enter the net capital gain expected for 2002
3.	Combine the net short-term capital loss and 28% rate gain or loss expected for 2002. If zero or less, enter 0
4.	Enter the unrecaptured section 1250 gain expected for 2002
5.	Add lines 3 and 4
6.	Subtract line 5 from line 2. If zero or less, enter 0
7.	Subtract line 6 from line 1. If zero or less, enter 0
8.	Enter the smaller of line 1 or $46,700 ($27,950 if single; $23,350 if married filing separately; $37,450 if head of household)
9.	Enter the smaller of line 7 or line 8
10.	Subtract line 2 from line 1. If zero or less, enter 0
11.	Enter the larger of line 9 or line 10
12.	Tax on amount on line 11 from the 2002 Tax Rate Schedule
	Note. If line 7 is more than line 8, go to line 18.
13.	Subtract line 9 from line 8. If zero or less, enter 0
14.	Multiply line 13 by 10% (.10)
15.	Enter the amount, if any, of your qualified 5-year gain. Do not enter more than the amount on line 13.
16.	Multiply line 15 by 2% (.02)
17.	Subtract line 16 from line 14
	Note. If line 13 minus line 15 is more than zero and equal to line 6, enter 0 on lines 20, 25, and 28, and go to line 29.
18.	Enter the smaller of line 1 or line 6
19.	Subtract line 13 from line 18
20.	Multiply line 19 by 20% (.20)
	Note. If line 4 is zero or blank, skip lines 21 through 25 and read the note above line 26.
21.	Enter the smaller of line 2 or line 4
22.	Add lines 2 and 11
23.	Subtract line 1 from line 22. If zero or less, enter 0
24.	Subtract line 23 from line 21. If zero or less, enter 0
25.	Multiply line 24 by 25% (.25)
	Note. If line 3 is zero or blank, go to line 29
26.	Add lines 11, 13, 19, and 24
27.	Subtract line 26 from line 1. If zero or less, enter 0
28.	Multiply line 27 by 28% (.28)
29.	Add lines 12, 17, 20, 25, and 28
30.	Tax on the amount on line 1 from the 2002 Tax Rate Schedule
31.	Tax. Enter the smaller of line 29 or line 30 here and on line 6 of the 2002 Estimated Tax Worksheet

A collectibles gain or loss is any gain or loss from the sale or exchange of a work of art, rug, antique, metal, gem, stamp, coin, or alcoholic beverage or other collectible that is a capital asset and that was held more than one year.

Step 2.   Add your expected taxes (line 8 of the 2002 Estimated Tax Worksheet). Include on line 8 the sum of:

1. Your tax on line 6,
2. Your expected alternative minimum tax from Form 6251 (line 41 of the 2001 Form 1040) on line 7,
3. Your expected additional taxes from Form 8814, Parents' Election To Report Child's Interest and Dividends, and Form 4972, Tax on Lump-Sum Distributions (line 40 box a and box b of the 2001 Form 1040), and
4. Any recapture of education credits.

Step 3.   Subtract your expected credits (line 9 of the 2002 Estimated Tax Worksheet). If you are using your 2001 return as a guide and filed Form 1040, your total credits for 2001 were shown on line 51. If you filed Form 1040A, your total credits for 2001 were on line 33.

If your credits on line 9 of the worksheet are more than your taxes on line 8, enter -0- on line 10 and go on to Step 4.

Step 4.   Add your expected self-employment tax (line 11 of the 2002 Estimated Tax Worksheet). You should have already figured your self-employment tax (see Expected Adjusted Gross Income earlier in this chapter).

Step 5.   Add your expected other taxes (line 12 of the 2002 Estimated Tax Worksheet).

Other taxes include:

1. Taxes on accumulation distribution of trusts,
2. Taxes on distributions from an MSA,
3. Taxes on early distributions from:
   1. An IRA or other qualified plan,
   2. An annuity, or
   3. A modified endowment contract entered into after June 20, 1988,
4. Advance earned income credit payments,
5. Household employment taxes (before subtracting advance EIC payments made to your employee(s) if:
   1. You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income, or
   2. You would be required to make estimated tax payments even if you did not include household employment taxes when figuring your estimated tax, and
6. Write-in amounts on line 58 of Form 1040.

Do not include tax on recapture of a federal mortgage subsidy, social security and Medicare tax on unreported tip income, or uncollected employee social security and Medicare or RRTA tax on tips or group-term life insurance.

If you filed Form 1040 for 2001, any of the taxes in items 1, 2, or 3 above would have been included in the total on line 55 of that form.

If you filed a 2001 Form 1040A, your only other taxes were any advance earned income credit payments on line 35.

Step 6.   Subtract your expected earned income credit, additional child tax credit, and Form 4136 fuel tax credit (line 13b of the 2002 Estimated Tax Worksheet). These are shown on lines 61a, 63, and 65 of the 2001 Form 1040.

To figure your expected fuel tax credit, do not include fuel tax for the first three quarters of the year that you expect to have refunded to you.

The earned income credit is shown on line 39a of the 2001 Form 1040A. The additional child tax credit is shown on line 40 of the 2001 Form 1040A.

The result of steps 1 through 6 is your total expected tax for 2002 (line 13c of the 2002 Estimated Tax Worksheet).

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