Annualized Income Installment Method

If you do not receive your income evenly throughout the year (for example, your income from a repair shop you operate is much larger in the summer than it is during the rest of the year), your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method.

To see whether you can pay less for any period, complete the blank 2002 Annualized Estimated Tax Worksheet (Worksheet 2.10) later in this chapter. (Note. You must first complete the 2002 Estimated Tax Worksheet through line 16.) The worksheet annualizes your tax at the end of each period based on a reasonable estimate of your income, deductions, and other items relating to events that occurred since the beginning of the tax year through the end of the period. Use the result you figure on line 25d to make your estimated tax payments and complete your payment-vouchers.

See Example 2.10 for an illustration of the worksheet.

Annualized Estimated Tax Worksheets

Annualized Estimated Tax Worksheets (continued)

Note.   If you use the annualized income installment method to figure your estimated tax payments, you must file Form 2210 with your 2002 tax return. See Annualized Income Installment Method in chapter 4 for more information.

Instructions For Worksheet 2.10

The top of the worksheet shows the dates for each payment period. The periods build; that is, each period includes all previous periods. After the end of each payment period, complete the worksheet column for the period from the beginning of the tax year through the end of that payment period to figure the payment due for that period.

Line 1.   Enter your adjusted gross income for each period. This is your gross income, including your share of partnership or S corporation income or loss, for the period, minus your adjustments to income for that period. (See Expected Adjusted Gross Income under How To Figure Estimated Tax, earlier.)

Self-employment income.   If you had self-employment income, first complete Section B. Use the amounts on line 34c when figuring the amount of adjusted gross income to enter on line 1.

Line 4.   Be sure to consider all deduction limits figured on Schedule A.

Line 6.   Multiply line 4 by line 5 and enter the result on line 6, unless line 3 is more than $137,300 ($68,650 if married filing separately). In that case, use the following worksheet to figure the amount to enter on line 6. Complete this worksheet for each period.

Worksheet 2.7

1.	Enter the amount from line 4 of Section A
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
4.	Enter the number from line 5 of Section A
5.	Multiply the amount on line 1 by the number on line 4
	Note. If the amount on line 3 is zero, stop here and enter the amount from line 5 on line 6 of Section A.
6.	Multiply the amount on line 3 by the number on line 4
7.	Multiply the amount on line 6 by .80
8.	Enter the amount from line 3 of Section A
9.	Enter $137,300 ($68,650 if married filing separately)
10.	Subtract line 9 from line 8
11.	Multiply the amount on line 10 by .03
12.	Enter the smaller of line 7 or line 11
13.	Subtract line 12 from line 5. Enter the result here and on line 6 of Section A

Line 7.   See the 2002 Standard Deduction Tables at the end of this chapter. Find your standard deduction in the appropriate table.

Line 10.   Multiply $3,000 by your total expected exemptions, unless line 3 is more than the amount shown for your filing status in the following table.

Table 2.5

Single	$137,300
Married filing jointly or qualifying widow(er)	$206,000
Married filing separately	$103,000
Head of household	$171,650

In that case, use the following worksheet to figure the amount to enter on line 10.

Worksheet 2.8

1.	Multiply $3,000 by your total expected exemptions
2.	Enter the amount from line 3 of Section A
3.	Enter the amount shown for your filing status from Table 2.5
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 10 of Section A

Line 12.   Use the 2002 Tax Rate Schedules at the end of this chapter or in the instructions to Form 1040-ES to figure your annualized income tax. For the special method that must be used to figure tax on the income of a child under 14 who has more than $1,500 investment income, see Tax on Investment Income of Child Under 14 in Publication 929, Tax Rules for Children and Dependents.

Capital gains tax computation.   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 the following worksheet to figure the amount to enter on line 12 if the amount on line 1 includes capital gain.

Worksheet 2.9

1.	Enter the amount from line 11 of your 2002 Annualized 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 12 of the 2002 Annualized 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.

Line 13.   Enter your self-employment tax for each period from line 34a.

Line 14.   Include all the taxes you will owe (other than income tax and self-employment tax) because of events that occurred during the period.

If you filed a 2001 Form 1040, these include:

1. Taxes on qualified plans, including IRAs, and other tax favored accounts,
2. Advance earned income credit,
3. Household employment taxes that are reported on your income tax return, and
4. 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, and any uncollected social security, Medicare, or railroad retirement tax.

If you filed a 2001 Form 1040A, other tax is any advance earned income credit payments on line 35 of that form.

Line 16.   Include all the credits (other than withholding credits) you can claim because of events that occurred during the period. If you are using your 2001 return as a guide and filed Form 1040, your 2001 credits included the credits on lines 61a, 63, and 65, and the credits that are included in the total on line 51. If you filed Form 1040A, your 2001 credits included the credits on lines 39a, and 40.

Line 25a.   If line 24 is smaller than line 21 and you are not certain of the estimate of your 2002 tax, you can avoid a penalty by entering the amount from line 21 on line 25a.

Line 25c.   Include all estimated tax payments credited to 2002 and federal income tax withholding through the payment due date for the period. Also include excess social security and excess railroad retirement for the period.

Your withholding is considered paid in four equal installments, one on the due date of each payment period. To figure the amount to include on line 25c for each period, multiply your total expected withholding for 2002 by:

1. 25% (.25) for the first period,
2. 50% (.50) for the second period,
3. 75% (.75) for the third period, or
4. 100% (1.00) for the fourth period.

You may choose to include your actual withholding through the due date for each period on line 25c. You can make this choice separately for the taxes withheld from your wages and all other withholding. For an explanation of what to include in withholding, see Total Estimated Tax Payments under How To Figure Estimated Tax, earlier.

Section B.   If you had income from self-employment during any period, complete the worksheet column for that period to figure your annualized self-employment tax before you complete the worksheet column for that period in Section A.

Nonresident aliens.   If you will file Form 1040NR and you do not receive wages as an employee subject to U.S. income tax withholding, the instructions for the worksheet are modified as follows.

1. Skip the first column.
2. On line 1, enter your income for the period that is effectively connected with a U.S. trade or business.
3. On line 17, increase your entry by the amount determined by multiplying your income for the period that is not effectively connected with a U.S. trade or business by the following:
   1. 72% for the second column,
   2. 45% for the third column, and
   3. 30% for the fourth column. However, if you can use a treaty rate lower than 30%, use the percentages determined by multiplying your treaty rate by 2.4, 1.5, and 1, respectively, instead of the above percentages.
4. On line 22, enter one-half of the amount from line 16c of the Form 1040-ES(NR) 2002 Estimated Tax Worksheet in the second column, and one-fourth in the third and fourth columns.
5. On lines 20 and 23, skip column (b).
6. On line 25c, if you do not use the actual withholding method, include one-third of your total expected withholding in the second column and two-thirds in the third and fourth columns.

See Publication 519 for more information.

Estimated Tax Payments Not Required

You do not have to make estimated tax payments if your withholding in each payment period is at least one-fourth of your required annual payment or at least your required annualized income installment for that period. You also do not have to make estimated tax payments if you will pay enough through withholding to keep the amount you will owe with your return under $1,000.

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