How To Figure Each Payment
You should pay enough estimated tax by the due date of each payment period to avoid a penalty for that period. You can figure your required payment
for each period by using either the regular installment method or the annualized income installment method. These methods are described in Publication
505. If you do not pay enough each payment period, you may be charged a penalty even if you are due a refund when you file your tax return.
Underpayment penalty.
If your estimated tax payment for a previous period is less than one-fourth of your amended estimated tax, you may be charged a penalty for
underpayment of estimated tax for that period when you file your tax return. See chapter 4 of Publication 505 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 owe with your return under $1,000.
How To Pay Estimated Tax
There are five ways to pay estimated tax.
- By crediting an overpayment on your 2002 return to your 2003 estimated tax.
- By sending in your payment with a payment-voucher from Form
1040-ES.
- By paying electronically using the Electronic Federal Tax Payment System (EFTPS). For EFTPS information, call
1-800-945-8400 or 1-800-555-4477.
- By electronic funds withdrawal if you are filing Form 1040 or Form 1040A electronically.
- By credit card using a pay-by-phone system or the Internet.
Crediting an Overpayment
When you file your Form 1040 or Form 1040A for 2002 and you have an overpayment of tax, you can apply part or all of it to your estimated tax for
2003. On line 72 of Form 1040, or line 46 of Form 1040A, write the amount you want credited to your estimated tax rather than refunded. The amount you
have credited should be taken into account when figuring your estimated tax payments.
You can use all the credited amount toward your first payment, or you can spread it out in any way you choose among any or all of your payments.
If you ask that an overpayment be credited to your estimated tax for the next year, the payment is considered to have been made on the due date of
the first estimated tax installment (April 15 for calendar year taxpayers). You cannot have any of that amount refunded to you after that due date
until the close of that tax year. You also cannot use that overpayment in any other way after that date.
Using the Payment-Vouchers
Each payment of estimated tax must be accompanied by a payment-voucher from Form 1040-ES. If you made estimated tax payments last year, you
should receive a copy of the 2003 Form 1040-ES in the mail. It will have payment-vouchers preprinted with your name, address, and social
security number. Using the preprinted vouchers will speed processing, reduce the chance of error, and help save processing costs.
If you did not pay estimated tax last year, you will have to get a copy of Form 1040-ES from the IRS. After you make your first payment, a
Form 1040-ES package with the preprinted vouchers will be mailed to you. Follow the instructions in the package to make sure you use the
vouchers correctly.
Use the window envelopes that came with your Form 1040-ES package. If you use your own envelope, make sure you mail your payment-vouchers to
the address shown in the Form 1040-ES instructions for the place where you live.
Do not use the address shown in the Form 1040 or Form 1040A instructions.
If you file a joint return and you are making joint estimated tax payments, please enter the names and social security numbers on the payment
voucher in the same order as they will appear on the joint return.
Change of address.
You must notify the IRS if you are making estimated tax payments and you changed your address during the year. You must send a clear and concise
written statement to the IRS Service Center where you filed your last return and provide all of the following:
- Your full name (and your spouse's full name),
- Your signature (and spouse's signature),
- Your old address (and spouse's old address if different),
- Your new address, and
- Your social security number (and spouse's social security number).
You can use
Form 8822, Change of Address, for this purpose.
You can continue to use your old preprinted payment-vouchers until the IRS sends you new ones. However, do not correct the address on
the old voucher.
Payment by Electronic Funds Withdrawal or Credit Card
If you want to make estimated payments by electronic funds withdrawal or by credit card, see the Form 1040-ES instructions or How To Pay
Estimated Tax in Publication 505.
Credit for Withholding and Estimated Tax
When you file your 2002 income tax return, take credit for all the income tax and excess social security or railroad retirement tax withheld from
your salary, wages, pensions, etc. Also, take credit for the estimated tax you paid for 2002. These credits are subtracted from your tax. You should
file a return and claim these credits, even if you do not owe tax.
If you had two or more employers and were paid wages of more than $84,900 during 2002, too much social security or railroad retirement tax may have
been withheld from your wages. See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld in chapter 38.
Withholding
If you had income tax withheld during 2002, you should receive a statement by January 31, 2003, showing your income and the tax withheld. Depending
on the source of your income, you will receive:
- Form W-2, Wage and Tax Statement,
- Form W-2G, Certain Gambling Winnings, or
- A form in the 1099 series.
Forms W-2 and W-2G.
You file Form W-2 with your income tax return. File Form W-2G with your return if it shows any federal income tax withheld from your
winnings.
You should get at least two copies of each form you receive. Attach one copy to the front of your federal income tax return. Keep one copy for your
records. You should also receive copies to file with your state and local returns.
Form W-2
Your employer should give you a Form W-2 for 2002 by January 31, 2003. You should receive a separate Form W-2 from each employer you
worked for.
If you stop working before the end of the year, your employer can give you your Form W-2 at any time after you leave your job. However, your
employer must give it to you by January 31 of the following year (or the next day that is not a Saturday, Sunday, or holiday if January 31 is a
Saturday, Sunday, or holiday).
If you ask for the form, your employer must give it to you within 30 days after receiving your written request or within 30 days after your final
wage payment, whichever is later.
If you have not received your Form W-2 on time, you should ask your employer for it. If you do not receive it by February 15, call the IRS.
Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the
year. Include the federal income tax withheld (as shown on Form W-2) on:
- Line 62 if you file Form 1040,
- Line 39 if you file Form 1040A, or
- Line 7 if you file Form 1040EZ.
Form W-2 is also used to report any taxable sick pay you received and any income tax withheld from your sick pay.
Form W-2G
If you had gambling winnings in 2002, the payer may have withheld 27% as income tax. If tax was withheld, the payer will give you a Form W-2G
showing the amount you won and the amount of tax withheld.
Report the amounts you won on line 21 of Form 1040. Take credit for the tax withheld on line 62 of Form 1040. If you had gambling winnings, you
must use Form 1040; you cannot use Form 1040A or Form 1040EZ.
The 1099 Series
Most forms in the 1099 series are not filed with your return. You should receive these forms by February 1, 2003. Keep these forms for your
records. There are several different forms in this series, including:
- Form 1099-B, Proceeds From Broker and Barter Exchange Transactions,
- Form 1099-DIV, Dividends and Distributions,
- Form 1099-G, Certain Government Payments,
- Form 1099-INT, Interest Income,
- Form 1099-MISC, Miscellaneous Income,
- Form 1099-OID, Original Issue Discount,
- Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts,
etc.,
- Form SSA-1099, Social Security Benefit Statement, and
- Form RRB-1099, Payments by the Railroad Retirement Board.
If you received the types of income reported on some forms in the 1099 series, you may not be able to use Form 1040A or Form 1040EZ. See the
instructions to these forms for details.
Form 1099-R.
Attach Form 1099-R to your return if box 4 shows federal income tax withheld. Include the amount withheld in the total on line 62 of Form
1040 or line 39 of Form 1040A. You cannot use Form 1040EZ if you received payments reported on Form 1099-R.
Backup withholding.
If you were subject to backup withholding on income you received during 2002, include the amount withheld, as shown on your Form 1099, in the total
on line 62 of Form 1040, or line 39 of Form 1040A.
Form Not Correct
If you receive a form with incorrect information on it, you should ask the payer for a corrected form. Call the telephone number or write to the
address given for the payer on the form. The corrected Form W-2G or Form 1099 you receive will be marked Corrected. A special form, Form
W-2c, Corrected Wage and Tax Statement, is used to correct a Form W-2.
Form Received After Filing
If you file your return and you later receive a form for income that you did not include on your return, you should report the income and take
credit for any income tax withheld by filing Form 1040X, Amended U.S. Individual Income Tax Return.
Separate Returns
If you are married but file a separate return, you can take credit only for the tax withheld from your own income. Do not include any amount
withheld from your spouse's income. However, different rules may apply if you live in a community property state.
Community property states are listed in chapter 2. For more information on these rules, and some exceptions, see Publication 555, Community
Property.
Fiscal Years
If you file your tax return on the basis of a fiscal year (a 12-month period ending on the last day of any month except December), you must follow
special rules to determine your credit for federal income tax withholding. For a discussion of how to take credit for withholding on a fiscal year
return, see Fiscal Years in chapter 3 of Publication 505.
Estimated Tax
Take credit for all your estimated tax payments for 2002 on line 63 of Form 1040 or line 40 of Form 1040A. Include any overpayment from 2001 that
you had credited to your 2002 estimated tax. You must use Form 1040 or Form 1040A if you paid estimated tax. You cannot use Form 1040EZ.
Name changed.
If you changed your name, and you made estimated tax payments using your old name, attach a brief statement to the front of your tax return
indicating:
- When you made the payments,
- The amount of each payment,
- The IRS address to which you sent the payments,
- Your name when you made the payments, and
- Your social security number.
The statement should cover payments you made jointly with your spouse as well as any you made separately.
Separate Returns
If you and your spouse made separate estimated tax payments for 2002 and you file separate returns, you can take credit only for your own payments.
If you made joint estimated tax payments, you must decide how to divide the payments between your returns. One of you can claim all of the
estimated tax paid and the other none, or you can divide it in any other way you agree on. If you cannot agree, you must divide the payments in
proportion to each spouse's individual tax as shown on your separate returns for 2001.
Divorced Taxpayers
If you made joint estimated tax payments for 2002, and you were divorced during the year, either you or your former spouse can claim all of the
joint payments, or you each can claim part of them. If you cannot agree on how to divide the payments, you must divide them in proportion to each
spouse's individual tax as shown on your separate returns for 2002.
If you claim any of the joint payments on your tax return, enter your former spouse's social security number (SSN) in the space provided on the
front of Form 1040 or Form 1040A. If you divorced and remarried in 2002, enter your present spouse's SSN in that space and write your former spouse's
SSN, followed by DIV, to the left of line 63, Form 1040, or line 40, Form 1040A.
Underpayment Penalty
If you did not pay enough tax either through withholding or by making estimated tax payments, you will have an underpayment of estimated tax and
you may have to pay a penalty. Generally, you will not have to pay a penalty for 2002 if any of the following situations applies.
- The total of your withholding and estimated tax payments was at least as much as your 2001 tax (or 112% of your 2001 tax if your adjusted
gross income was more than $150,000 - $75,000 if your 2002 filing status is married filing separately) and you paid all required estimated tax
payments on time.
- The tax balance due on your return is no more than 10% of your total 2002 tax, and you paid all required estimated tax payments on time.
- Your total 2002 tax minus your withholding is less than $1,000.
- You did not have a tax liability for 2001.
- You did not have any withholding taxes and your current year tax less any household employment taxes is less than $1,000.
Special rules apply if you are a farmer or fisherman. See Farmers and Fishermen in chapter 4 of Publication 505 for more
information.
IRS can figure the penalty for you.
If you think you owe the penalty but you do not want to figure it yourself when you file your tax return, you may not have to. Generally, the IRS
will figure the penalty for you and send you a bill. However, you must complete Form 2210 and file it with your return if you are able to lower or
eliminate your penalty. See chapter 4 of Publication 505.
Income
The eight chapters in this part discuss many kinds of income. They explain which income is and is not taxed. See Part Three for
information on gains and losses you report on Schedule D (Form 1040) and for information on selling your home.
Wages, Salaries, and Other Earnings
Important Reminder
Foreign income.
If you are a U.S. citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return
unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2,
Wage and Tax Statement, or Form 1099 from the foreign payer. This applies to earned income (such as wages and tips) as well as unearned
income (such as interest, dividends, capital gains, pensions, rents, and royalties).
If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. For details, see Publication
54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
Introduction
This chapter discusses wages, salaries, fringe benefits, and other compensation received for services as an employee. The topics include:
- Bonuses and awards,
- Sickness and injury benefits, and
- Special rules for certain employees.
The chapter explains what income is included in the employee's gross income and what is not included.
Useful Items You may want to see:
Publication
- 463
Travel, Entertainment, Gift, and Car Expenses
- 503
Child and Dependent Care Expenses
- 505
Tax Withholding and Estimated Tax
- 525
Taxable and Nontaxable Income
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