If you plan to file a joint return with your spouse for 2003, but you filed separate returns for 2002, your 2002 tax is the total of the tax shown on your separate returns. You filed a separate return if you filed as single, head of household, or married filing separately.

If you plan to file a separate return for 2003, but you filed a joint return for 2002, your 2002 tax is your share of the tax on the joint return. You file a separate return if you file as single, head of household, or married filing separately.

To figure your share of the tax on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2002 using the same filing status as for 2003. Then multiply the tax on the joint return by the following fraction:

You do not have to pay estimated tax for 2003 if you meet all three of the following conditions.

You had no tax liability for 2002 if your total tax (defined later under Required Annual Payment) was zero or you did not have to file an income tax return.

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 2003 that, if you had received it in 2002, 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.

Be sure to subtract from your expected total income all of the adjustments you expect to take on your 2003 tax return. If you are using your 2002 return as a guide and filed Form 1040, your adjustments for 2002 were on lines 23–33a. If you filed Form 1040A, your 2002 adjustments were on lines 16–19 .

If you expect to claim itemized deductions on your 2003 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.

If you expect to claim the standard deduction on your 2003 tax return, subtract it from your expected adjusted gross income. Use the 2003 Standard Deduction Tables at the end of this chapter to find your standard deduction.

The standard deduction for some individuals is zero. Your standard deduction will be zero if you:

After you have subtracted either your expected itemized deductions or your standard deduction from your expected adjusted gross income, reduce the amount remaining by $3,050 for each exemption you expect to take on your 2003 tax return (lines 4 and 5 of the 2003 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.

For 2003, your deduction for personal exemptions is phased out if your adjusted gross income (AGI) falls within the following brackets.

If the amount on line 1 of your 2003 Estimated Tax Worksheet is more than the highest amount in the bracket for your filing status, enter “–0–” on line 4 of your 2003 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 2003 Estimated Tax Worksheet.

Figure your expected income tax (line 6 of the 2003 Estimated Tax Worksheet). Use the 2003 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.

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.

Add your expected taxes (line 8 of the 2003 Estimated Tax Worksheet). Include on line 8 the sum of:

Subtract your expected credits (line 9 of the 2003 Estimated Tax Worksheet). If you are using your 2002 return as a guide and filed Form 1040, your total credits for 2002 were shown on line 54. If you filed Form 1040A, your total credits for 2002 were on line 35.

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.

Add your expected self-employment tax (line 11 of the 2003 Estimated Tax Worksheet). You should have already figured your self-employment tax (see Expected Adjusted Gross Income earlier in this chapter).

Add your expected other taxes (line 12 of the 2003 Estimated Tax Worksheet).

Other taxes include:

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 2002, any of the taxes in items 1, 2, or 3 above would have been included in the total on line 58 of that form.

If you filed a 2002 Form 1040A, your only “other taxes ” were any advance earned income credit payments on line 37.

Subtract your expected earned income credit, additional child tax credit, and Form 4136 fuel tax credit (line 13b of the 2003 Estimated Tax Worksheet). These are shown on lines 64, 66, and 68 of the 2002 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 41 of the 2002 Form 1040A. The additional child tax credit is shown on line 42 of the 2002 Form 1040A.

The result of steps 1 through 6 is your total expected tax for 2003 (line 13c of the 2003 Estimated Tax Worksheet).

The total amount you must pay is the smaller of:

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

If your adjusted gross income (AGI) for 2002 was more than $150,000 ($75,000 if your filing status for 2003 is married filing a separate return), substitute 110% for 100% in (2) above. This rule does not apply to farmers and fishermen.

If at least two-thirds of your gross income for 2002 or 2003 is from farming or fishing, your required annual payment is the smaller of:

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

Your 2002 total tax on Form 1040 is the amount on line 61 reduced by the total of the amounts on lines 57, 64, and 66, any credit from Form 4136 included on line 68, any recapture of a federal mortgage subsidy and any uncollected social security, Medicare, or railroad retirement tax included on line 61, and any tax on excess contributions to IRAs and medical savings accounts, and on excess accumulations in qualified retirement plans from Form 5329 included on line 58.

On Form 1040A, it is line 38 reduced by the amounts on lines 41 and 42. On Form 1040EZ, it is line 10 reduced by line 8.

Jeremy Martin's total tax on his 2002 return was $45,000, and his expected tax for 2003 is $70,000. His 2002 AGI was $180,000. Because Jeremy had more than $150,000 of AGI in 2002, he figures his required annual payment as follows. He determines that 90% of his expected tax for 2003 is $63,000 (.90 × $70,000). Next, he determines that 110% of the tax shown on his 2002 return is $49,500. Finally, he determines that his required annual payment is $49,500, the smaller of the two.

Your expected withholding for 2003 includes the income tax you expect to be withheld from all sources (wages, pensions and annuities, etc.). It also includes excess social security and railroad retirement tax you expect to be withheld from your wages.

For this purpose, you will have excess social security or tier 1 railroad retirement tax withholding for 2003 only if your wages from two or more employers are more than $87,000.

If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or legal holiday. For example, a payment due Sunday, June 15, 2003, will be on time if you make it by Monday, June 16, 2003.

If you file your 2003 Form 1040 or Form 1040A by February 2, 2004, and pay the rest of the tax you owe, you do not need to make your estimated tax payment that would be due on January 15, 2004.

If your tax year does not start on January 1, your payment due dates are:

You do not have to make the last payment listed above if you file your income tax return by the last day of the first month after the end of your fiscal year and pay all the tax you owe with your return.

If you do not have income subject to estimated tax until a later payment period, you can make your first payment by the due date for that period. You can pay your entire estimated tax by the due date for that period or you can pay it in installments by the due date for that period and the due dates for the remaining periods. The following chart shows the dates for making installment payments.

After making your first estimated tax payment, changes in your income, adjustments, deductions, credits, or exemptions may make it necessary for you to refigure your estimated tax. Pay the unpaid balance of your amended estimated tax by the next payment due date after the change or in installments by that date and the due dates for the remaining payment periods.

To determine how much you should pay by each payment due date, see How To Figure Each Payment, later.

On a joint return, you must add your spouse's gross income to your gross income to determine if at least two-thirds of your total gross income is from farming or fishing.

Your gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. To determine whether two-thirds of your gross income for 2002 was from farming or fishing, use as your gross income the total of the income (not loss) amounts.

This is income from cultivating the soil or raising agricultural commodities. It includes the following amounts.

For 2002, gross income from farming is the total of the amounts from:

Wages you receive as a farm employee and wages you receive from a farm corporation are not gross income from farming.

This is income from catching, taking, harvesting, cultivating, or farming any kind of fish, shellfish (for example, clams and mussels), crustaceans (for example, lobsters, crabs, and shrimp), sponges, seaweeds, or other aquatic forms of animal and vegetable life.

Gross income from fishing includes the following amounts.

Services normally performed in connection with fishing include:

If you are a farmer or fisherman, but your tax year does not start on January 1, you can either:

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 for more information.

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.)

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.

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

Multiply line 4 by line 5 and enter the result on line 6, unless line 3 is more than $139,500 ($69,750 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.

See the 2003 Standard Deduction Tables at the end of this chapter. Find your standard deduction in the appropriate table.

Multiply $3,050 by your total expected exemptions, unless line 3 is more than the amount shown for your filing status in the following table.

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

Use the 2003 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.

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.

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

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 2002 Form 1040, these include:

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 2002 Form 1040A, “other tax” is any advance earned income credit payments on line 37 of that form.

Include all the credits (other than withholding credits) you can claim because of events that occurred during the period. If you are using your 2002 return as a guide and filed Form 1040, your 2002 credits included the credits on lines 64, 66, and 68 box b, and the credits that are included in the total on line 54. If you filed Form 1040A, your 2002 credits included the credits on lines 41 and 42.

If line 24 is smaller than line 21 and you are not certain of the estimate of your 2003 tax, you can avoid a penalty by entering the amount from line 21 on line 25a.

Include all estimated tax payments credited to 2003 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 2003 by:

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.

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.

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.

See Publication 519 for more information.

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 Center where you filed your last return and provide all of the following:

You can use Form 8822, Change of Address, for this purpose.

You can continue to use your old pre-printed payment-vouchers until the IRS sends you new ones. However, do not correct the address on the old voucher.

Anne can claim an income tax deduction for one-half of her self-employment tax as a business expense. So before the Joneses figure their expected adjusted gross income, they figure Anne's expected self-employment tax, as follows:

The Joneses enter $35,555 on the dotted line and $5,440 in the blank on line 11 of the worksheet. They subtract one-half of that amount, $2,720, and their $1,000 adjustment for IRA contributions from their $78,016 total income to find their expected adjusted gross income, $74,296. They enter that amount on line 1 of the worksheet.

The Joneses find their standard deduction, $7,950, in the 2003 Standard Deduction Tables. This is smaller than their expected itemized deductions, so they enter $9,200 on line 2 of the worksheet. They subtract the amount on line 2 from the amount on line 1 and enter the result, $65,096, on line 3. They enter their deduction for exemptions, $6,100, on line 4. After subtracting this amount, their expected taxable income on line 5 is $58,996.

The Joneses use the 2003 Tax Rate Schedule Y–1 at the end of this chapter to figure their expected income tax, and enter $9,635 on line 6 of the worksheet. They do not expect to owe any other taxes that would be entered on lines 7 or 12, or have any credits that would be entered on lines 9 or 13b, so they leave those lines blank.

The Joneses' total expected tax on line 13c, after adding Anne's self-employment tax, is $15,075.

The Joneses multiply their total expected tax by 90% and enter $13,568 on line 14a of the worksheet. They enter their 2002 tax on line 14b. Their required annual payment on line 14c is the smaller amount, $13,568.

They enter Larry's expected withholding, $5,792, on line 15 and subtract it from their required annual payment. Their estimated tax on line 16 is $7,776.

The Joneses' first estimated tax payment is due April 15, 2003. They enter one-fourth of their estimated tax, $1,944, on line 17 of the worksheet and on their Form 1040–ES payment-voucher due April 15. They mail the voucher with their payment to the address shown for their area in the Form 1040–ES instructions, and record the payment on the Record of Estimated Tax Payments in the instructions.

If their estimated tax does not change during the year, the Joneses also will pay $1,944 estimated tax by June 16, September 16, 2003, and January 15, 2004.

Before the Joneses figure their adjusted gross income for the period, they first figure Anne's self-employment tax in Section B, and then her adjustment to income for self-employment tax.

On line 26 of Section B, they enter $2,771, which is Anne's net profit from self-employment for the period, $3,000, multiplied by .9235. The prorated social security tax limit is preprinted on line 27. She has no social security wages, so they enter zero on line 28, and $21,750 on line 29. Anne's annualized social security tax on line 31 is $1,374, ($2,771 × .496). Her annualized medicare tax on line 33 is $321 ($2,771 × .116). Her total annualized self-employment tax on line 34a is $1,695. They enter that amount on line 13 of Section A.

The Joneses figure their adjustment to income for Anne's self-employment tax on lines 34b and 34c. They figure the amount to be $212 ($1,695 ÷ 8). They subtract that amount and their $150 IRA contributions from their $11,462 total income and enter their adjusted gross income for the period, $11,100, on line 1 of Section A. They multiply that amount by 4 and enter their annualized adjusted gross income, $44,400, on line 3.

The Joneses figure their annualized itemized deductions ($1,200 × 4) on lines 4 through 6 of Section A. Because the result is smaller than their standard deduction, they enter their $7,950 standard deduction on line 8. After subtracting that amount and their $6,100 deduction for exemptions, the Joneses' annualized taxable income on line 11 is $30,350.

The Joneses use the 2003 Tax Rate Schedule Y–1 at the end of this chapter to figure their annualized income tax, $3,953, on line 12 of Section A.

The Joneses have no other taxes or credits for the period that would be entered on lines 14 or 16, so they leave those lines blank and enter $5,648 ($3,953 + $1,695) on lines 15 and 17. This is their annualized total tax.

The Joneses' annualized income installment on line 21 of Section A is $1,271 ($5,648 × 22.5%). On lines 22 and 24 they enter $3,392, one-fourth of their $13,568 required annual payment under the regular installment method of figuring estimated tax payments (from line 14c of the 2003 Estimated Tax Worksheet). Because $1,271 is smaller, they enter that amount on lines 25a and 25b.

Larry's total expected withholding for the year is $5,792. The Joneses can treat one-fourth of that amount, $1,448, as paid on April 15, or they can choose to use Larry's actual withholding for the period, $1,350. The Joneses enter $1,448 on line 25c.

On line 25d, the Joneses' required estimated tax payment for the period under the annualized income installment method is $0 ($1,271 - $1,448). They do not have a Form 1040–ES payment-voucher due April 15, 2003.