Publication 505: Tax Withholding and Estimated Tax; Chapter 3 - Credit for Withholding and Estimated Tax for 2004

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Table of Contents

What's New

Excess social security or railroad retirement tax withholding. You can claim a credit for excess social security or tier 1 railroad retirement tax withholding for 2004 only if your total wages from two or more employers were more than $87,900.

Introduction

When you file your 2004 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 2004. These credits are subtracted from your tax. You should file a return and claim these credits, even if you do not owe tax.

If the total of your withholding and your estimated tax payments for any payment period is less than the amount you needed to pay by the due date for that period, you may be charged a penalty, even if the total of these credits is more than your tax for the year.

Topics - This chapter discusses:

How to take credit for withholding,
How to take credit for estimated taxes you paid, and
How to take credit for excess social security or railroad retirement tax withholding.

Withholding

If you had income tax withheld during 2004, you should receive a statement by January 31, 2005, 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 2004 by January 31, 2005. You should receive a separate Form W-2 from each employer you worked for.

If you stopped working before the end of the year, your employer could have given you your Form W-2 at any time after you stopped working. However, your employer must give it to you by January 31, 2005.

If you ask for the form, your employer must send 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 by January 31, 2005, you should ask your employer for it. If you do not receive it by February 15, call the IRS. The number is listed in the Form 1040, Form 1040A, and Form 1040EZ instructions. You will be asked for the following information:

Your employer's name, address, and telephone number, and, if known, your employer's identification number.
Your address, social security number, and daytime telephone number.
The dates of employment.
An estimate of your total wages and federal income tax withheld.

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 63, 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 2004, the payer may have withheld 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 63 of Form 1040. If you had gambling winnings, you must use Form 1040; you cannot use Form 1040A or Form 1040EZ.

Gambling losses can be deducted on Schedule A (Form 1040) as a miscellaneous itemized deduction. However, you cannot deduct more than the gambling winnings you report on line 21.

The 1099 Series

Most forms in the 1099 series are not filed with your return. You should receive these forms by January 31, 2005. 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-INT, Interest Income,
Form 1099-MISC, Miscellaneous Income,
Form 1099-OID, Original Issue Discount,
Form 1099-Q, Payments From Qualified Education Programs,
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 federal income tax withholding is shown in box 4. Include the amount withheld in the total on line 63 of Form 1040, or on 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 2004, include the amount withheld, as shown on your Form 1099, in the total on line 63 of Form 1040, or line 39 of Form 1040A.

Form Not Correct

If you receive a form with incorrect information, 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.

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. The following are community property states.

Arizona,
California,
Idaho,
Louisiana,
Nevada,
New Mexico,
Texas,
Washington, and
Wisconsin.

If you live in a community property state and file a separate return, you and your spouse must each report half of all community income in addition to your own separate income. Each of you takes credit for half of all taxes withheld on the community income. If you were divorced during the year, each of you generally must report half the community income and can take credit for half the withholding on that community income for the period before the divorce.

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, described below, to determine your credit for federal income tax withholding.

Normal withholding. You can claim credit on your tax return only for the tax withheld during the calendar year ending in your fiscal year. You cannot claim credit for any of the tax withheld during the calendar year beginning in your fiscal year. You will be able to claim credit for that withholding on your return for your next fiscal year.

The Form W-2 or 1099-R you receive for the calendar year that ends during your fiscal year will show the tax withheld and the income you received during that calendar year.

Although you take credit for all the withheld tax shown on the form, report only the part of the income shown on the form that you received during your fiscal year. Add to that the income you received during the rest of your fiscal year.

Example 3.1.

Miles Hanson files his return for a fiscal year ending June 30, 2004. In January 2004, he received a Form W-2 that showed that his wages for 2003 were $15,600 and that his income tax withheld was $1,409.40. His records show that he had received $7,500 of the wages by June 30, 2003, and $8,100 from July 1 through December 31, 2003.

On his return for the fiscal year ending June 30, 2004, Miles will report the $8,100 he was paid in July through December of 2003, plus whatever he was paid during the rest of the fiscal year, January 1, 2004, to June 30, 2004. However, he takes credit for all $1,409.40 that was withheld during 2003. On his return for the fiscal year ending June 30, 2005, he can take credit for any tax withheld during 2004 but not for any tax withheld during 2005.

On his return for the fiscal year ending June 30, 2006, Miles takes credit for any income tax withheld in 2005.

Backup withholding. If income tax has been withheld under the backup withholding rule, take credit for it on your tax return for the fiscal year in which you received the payment.

Example 3.2.

Emily Smith's records show that she received income in February 2005 from which $50 was withheld under the backup withholding rule. On her tax return for the fiscal year ending June 30, 2005, Emily takes credit for withheld income tax of $50.

Estimated Tax

Take credit for all your estimated tax payments for 2004 on line 64 of Form 1040 or line 40 of Form 1040A. Include any overpayment from 2003 that you had credited to your 2004 estimated tax. You must use Form 1040 or Form 1040A if you paid estimated tax. You cannot use Form 1040EZ.

If you were a beneficiary of an estate or trust, include on Form 1040, line 64, any trust payments of estimated tax credited to you (from line 14a of Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, Etc.). On the dotted line next to line 37 of Schedule E (Form 1040) write “ES payment claimed” and the amount. Do not include this amount in the total on line 37. The payment is treated as being made by you on January 15, 2005.

Name changed. If you changed your name, and you made estimated tax payments using your old name, attach a 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 2004 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 2004.

Example 3.3.

James and Evelyn Brown made joint estimated tax payments for 2004 totaling $3,000. They file separate Forms 1040. James' tax is $4,000 and Evelyn's is $1,000. If they do not agree on how to divide the $3,000, they must divide it proportionately between their returns. Because James' tax ($4,000) is 80% of the total tax ($5,000), his share of the estimated tax is $2,400 (80% of $3,000). The balance, $600 (20% of $3,000), is Evelyn's share.

Divorced Taxpayers

If you made joint estimated tax payments for 2004, 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 2004. See Example 3.3, earlier.

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 2004, enter your present spouse's SSN in that space and write your former spouse's SSN, followed by “DIV,” to the left of line 64, Form 1040, or line 40, Form 1040A.

Excess Social Security or Railroad Retirement Tax Withholding

Most employers must withhold social security tax from your wages. The federal government and state and local governments in some cases do not have to withhold social security tax from their employees' wages. If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax.

Two or more employers. If you worked for two or more employers in 2004, too much social security tax or RRTA tax may have been withheld from your pay. You may be able to claim the excess as a credit against your income tax when you file your return. Table 3.1 shows the maximum amount that should have been withheld for any of these taxes for 2004. Figure the excess withholding on the appropriate worksheet following Table 3.1. Use Worksheet 3.1 to figure excess social security tax; use Worksheet 3.2 to figure excess tier 1 RRTA tax; use Worksheet 3.3 to figure excess tier 2 RRTA tax.

Note.

If you worked for both a railroad employer and a nonrailroad employer, use Worksheet 3.2 to figure excess social security and tier 1 RRTA tax.

Joint returns. If you are filing a joint return, you cannot add any social security or RRTA tax withheld from your spouse's income to the amount withheld from your income. You must figure the excess separately for both you and your spouse to determine if either of you has excess withholding.

<emphasis role="bold">Table 3.1</emphasis>

Type of Tax	Maximum wages subject to tax	Tax rate	Maximum tax to be withheld
Social security	$87,900	6.2%	$5,449.80
Tier 1 railroad retirement (RRTA)	$87,900	6.2%	$5,449.80
Tier 2 RRTA	$65,100	4.9%	$3,189.90

Note.

All wages are subject to Medicare tax withholding.

Employer's error. If any one employer withheld too much social security or RRTA tax, you cannot claim the excess as a credit against your income tax. The employer should adjust the tax for you. If the employer does not adjust the overcollection, you can file a claim for refund using Form 843.

Worksheet for Nonrailroad Employees

Unless you worked for a railroad during 2004, figure the excess on the following worksheet.

Worksheet 3.1

1.	Add all social security tax withheld (but not more than $5,449.80 for each employer). This tax should be shown in box 4 of your Forms W–2. Enter the total here
2.	Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 62
3.	Add lines 1 and 2. If $5,449.80 or less, stop here. You cannot claim the credit.
4.	Social security limit	5,449.80
5.	Excess. Subtract line 4 from line 3.

Where to claim credit for excess social security withholding. If you file Form 1040, enter the excess on line 66. You cannot claim excess social security tax withholding on Form 1040A or Form 1040EZ.

Example 3.4.

In 2004, Tom Martin earned $52,000 working for Company A and $40,200 working for Company B. Company A withheld $3,224 for social security tax. Company B withheld $2,492.40 for social security tax. Because he worked for two employers and earned more than $87,900, he had too much social security tax withheld. Tom figures his credit of $266.60 as follows:

Filled-In Worksheet 3.1 for Tom Martin (Example 3.4)

1.	Add all social security tax withheld (but not more than $5,449.80 for each employer). This tax should be shown in box 4 of your Forms W–2. Enter the total here.	$5,716.40
2.	Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 62	0
3.	Add lines 1 and 2. If $5,449.80 or less, stop here. You cannot claim the credit.	5,716.40
4.	Social security tax limit	5,449.80
5.	Excess. Subtract line 4 from line 3.	$266.60

Worksheets for Railroad Employees

If you worked for a railroad during 2004, figure your excess withholding on the following worksheets.

Worksheet 3.2

1.	Add all social security and tier 1 RRTA tax withheld (but not more than $5,449.80 for each employer). Social security tax should be shown in box 4 and tier 1 RRTA should be shown in box 14 of your Forms W–2. Enter the total here
2.	Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 62
3.	Add lines 1 and 2. If $5,449.80 or less, stop here. You cannot claim the credit.
4.	Social security and tier 1 RRTA tax limit	5,449.80
5.	Excess. Subtract line 4 from line 3.

Where to claim credit for excess tier 1 RRTA withholding. If you file Form 1040, enter the excess on line 66. You cannot claim excess tier 1 RRTA withholding on Form 1040A or Form 1040EZ.

Worksheet 3.3

1.	Add all tier 2 RRTA tax withheld (but not more than $3,189.90 for each employer). Box 14 of your Forms W–2 should show tier 2 RRTA tax. Enter the total here
2.	Enter any uncollected tier 2 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 62
3.	Add lines 1 and 2. If $3,189.90 or less, stop here. You cannot claim the credit.
4.	Tier 2 RRTA tax limit	3,189.90
5.	Excess. Subtract line 4 from line 3.

How to claim refund of excess tier 2 RRTA . To claim a refund of tier 2 tax, use Form 843, Claim for Refund and Request for Abatement. Be sure to attach a copy of all of your W-2 forms.