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Freetaxusa 2. Freetaxusa Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Freetaxusa The pay may be in cash, property, or services. Freetaxusa It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Freetaxusa For information about deducting employment taxes, see chapter 5. Freetaxusa You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Freetaxusa Empowerment zone employment credit (Form 8844). Freetaxusa Indian employment credit (Form 8845). Freetaxusa Work opportunity credit (Form 5884). Freetaxusa Credit for employer differential wage payments (Form 8932). Freetaxusa Reduce your deduction for employee wages by the amount of employment credits you claim. Freetaxusa For more information about these credits, see the form on which the credit is claimed. Freetaxusa Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Freetaxusa Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Freetaxusa These and other requirements that apply to all business expenses are explained in chapter 1. Freetaxusa In addition, the pay must meet both of the following tests. Freetaxusa Test 1. Freetaxusa It must be reasonable. Freetaxusa Test 2. Freetaxusa It must be for services performed. Freetaxusa The form or method of figuring the pay does not affect its deductibility. Freetaxusa For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Freetaxusa Test 1—Reasonableness You must be able to prove that the pay is reasonable. Freetaxusa Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Freetaxusa If the pay is excessive, the excess pay is disallowed as a deduction. Freetaxusa Factors to consider. Freetaxusa Determine the reasonableness of pay by the facts and circumstances. Freetaxusa Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Freetaxusa To determine if pay is reasonable, also consider the following items and any other pertinent facts. Freetaxusa The duties performed by the employee. Freetaxusa The volume of business handled. Freetaxusa The character and amount of responsibility. Freetaxusa The complexities of your business. Freetaxusa The amount of time required. Freetaxusa The cost of living in the locality. Freetaxusa The ability and achievements of the individual employee performing the service. Freetaxusa The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Freetaxusa Your policy regarding pay for all your employees. Freetaxusa The history of pay for each employee. Freetaxusa Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Freetaxusa Employee-shareholder salaries. Freetaxusa If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Freetaxusa The excessive part of the salary would not be allowed as a salary deduction by the corporation. Freetaxusa For more information on corporate distributions to shareholders, see Publication 542, Corporations. Freetaxusa Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Freetaxusa For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Freetaxusa Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Freetaxusa If you give property to an employee as an employee achievement award, your deduction may be limited. Freetaxusa Achievement awards. Freetaxusa An achievement award is an item of tangible personal property that meets all the following requirements. Freetaxusa It is given to an employee for length of service or safety achievement. Freetaxusa It is awarded as part of a meaningful presentation. Freetaxusa It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Freetaxusa Length-of-service award. Freetaxusa An award will qualify as a length-of-service award only if either of the following applies. Freetaxusa The employee receives the award after his or her first 5 years of employment. Freetaxusa The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Freetaxusa Safety achievement award. Freetaxusa An award for safety achievement will qualify as an achievement award unless one of the following applies. Freetaxusa It is given to a manager, administrator, clerical employee, or other professional employee. Freetaxusa During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Freetaxusa Deduction limit. Freetaxusa Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Freetaxusa $400 for awards that are not qualified plan awards. Freetaxusa $1,600 for all awards, whether or not qualified plan awards. Freetaxusa A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Freetaxusa A highly compensated employee is an employee who meets either of the following tests. Freetaxusa The employee was a 5% owner at any time during the year or the preceding year. Freetaxusa The employee received more than $115,000 in pay for the preceding year. Freetaxusa You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Freetaxusa An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Freetaxusa To figure this average cost, ignore awards of nominal value. Freetaxusa Deduct achievement awards as a nonwage business expense on your return or business schedule. Freetaxusa You may not owe employment taxes on the value of some achievement awards you provide to an employee. Freetaxusa See Publication 15-B. Freetaxusa Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Freetaxusa However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Freetaxusa If the bonus is paid in property, see Property , later. Freetaxusa Gifts of nominal value. Freetaxusa If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Freetaxusa Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Freetaxusa For more information on this deduction limit, see Meals and lodging , later. Freetaxusa Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Freetaxusa Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Freetaxusa For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Freetaxusa Fringe Benefits A fringe benefit is a form of pay for the performance of services. Freetaxusa You can generally deduct the cost of fringe benefits. Freetaxusa You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Freetaxusa You also may not owe employment taxes on the value of the fringe benefits. Freetaxusa See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Freetaxusa Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Freetaxusa Certain fringe benefits are discussed next. Freetaxusa See Publication 15-B for more details on these and other fringe benefits. Freetaxusa Meals and lodging. Freetaxusa You can usually deduct the cost of furnishing meals and lodging to your employees. Freetaxusa Deduct the cost in whatever category the expense falls. Freetaxusa For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Freetaxusa If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Freetaxusa Deduction limit on meals. Freetaxusa You can generally deduct only 50% of the cost of furnishing meals to your employees. Freetaxusa However, you can deduct the full cost of the following meals. Freetaxusa Meals whose value you include in an employee's wages. Freetaxusa Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Freetaxusa This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Freetaxusa Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Freetaxusa Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Freetaxusa Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Freetaxusa This does not include meals you furnish on vessels primarily providing luxury water transportation. Freetaxusa Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Freetaxusa This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Freetaxusa Employee benefit programs. Freetaxusa Employee benefit programs include the following. Freetaxusa Accident and health plans. Freetaxusa Adoption assistance. Freetaxusa Cafeteria plans. Freetaxusa Dependent care assistance. Freetaxusa Education assistance. Freetaxusa Life insurance coverage. Freetaxusa Welfare benefit funds. Freetaxusa You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Freetaxusa For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Freetaxusa ). Freetaxusa Life insurance coverage. Freetaxusa You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Freetaxusa See Regulations section 1. Freetaxusa 264-1 for more information. Freetaxusa Welfare benefit funds. Freetaxusa A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Freetaxusa Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Freetaxusa Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Freetaxusa If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Freetaxusa Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Freetaxusa The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Freetaxusa The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Freetaxusa These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Freetaxusa For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Freetaxusa Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Freetaxusa However, if the employee performs no services, treat the amount you advanced as a loan. Freetaxusa If the employee does not repay the loan, treat it as income to the employee. Freetaxusa Below-market interest rate loans. Freetaxusa On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Freetaxusa See Below-Market Loans in chapter 4. Freetaxusa Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Freetaxusa The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Freetaxusa You can claim the deduction only for the tax year in which your employee includes the property's value in income. Freetaxusa Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Freetaxusa You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Freetaxusa Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Freetaxusa These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Freetaxusa Restricted property. Freetaxusa If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Freetaxusa However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Freetaxusa “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Freetaxusa This means that the recipient is not likely to have to give up his or her rights in the property in the future. Freetaxusa Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Freetaxusa However, your deduction may be limited. Freetaxusa If you make the payment under an accountable plan, deduct it in the category of the expense paid. Freetaxusa For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Freetaxusa If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Freetaxusa See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Freetaxusa Sick and Vacation Pay Sick pay. Freetaxusa You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Freetaxusa However, your deduction is limited to amounts not compensated by insurance or other means. Freetaxusa Vacation pay. Freetaxusa Vacation pay is an employee benefit. Freetaxusa It includes amounts paid for unused vacation leave. Freetaxusa You can deduct vacation pay only in the tax year in which the employee actually receives it. 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Freetaxusa 4. Freetaxusa Tax Withholding and Estimated Tax Table of Contents What's New for 2014 Reminders Introduction Useful Items - You may want to see: Tax Withholding for 2014Salaries and Wages Tips Taxable Fringe Benefits Sick Pay Pensions and Annuities Gambling Winnings Unemployment Compensation Federal Payments Backup Withholding Estimated Tax for 2014Who Does Not Have To Pay Estimated Tax Who Must Pay Estimated Tax How To Figure Estimated Tax When To Pay Estimated Tax How To Figure Each Payment How To Pay Estimated Tax Credit for Withholding and Estimated Tax for 2013Withholding Estimated Tax Underpayment Penalty for 2013 What's New for 2014 Tax law changes for 2014. Freetaxusa When you figure how much income tax you want withheld from your pay and when you figure your estimated tax, consider tax law changes effective in 2014. Freetaxusa For more information, see Publication 505. Freetaxusa Reminders Estimated tax safe harbor for higher income taxpayers. Freetaxusa If your 2013 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2014 or 110% of the tax shown on your 2013 return to avoid an estimated tax penalty. Freetaxusa Introduction This chapter discusses how to pay your tax as you earn or receive income during the year. Freetaxusa In general, the federal income tax is a pay-as-you-go tax. Freetaxusa There are two ways to pay as you go. Freetaxusa Withholding. Freetaxusa If you are an employee, your employer probably withholds income tax from your pay. Freetaxusa Tax also may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. Freetaxusa The amount withheld is paid to the IRS in your name. Freetaxusa Estimated tax. Freetaxusa If you do not pay your tax through withholding, or do not pay enough tax that way, you may have to pay estimated tax. Freetaxusa People who are in business for themselves generally will have to pay their tax this way. Freetaxusa Also, you may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rent, and royalties. Freetaxusa Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well. Freetaxusa This chapter explains these methods. Freetaxusa In addition, it also explains the following. Freetaxusa Credit for withholding and estimated tax. Freetaxusa When you file your 2013 income tax return, take credit for all the income tax withheld from your salary, wages, pensions, etc. Freetaxusa , and for the estimated tax you paid for 2013. Freetaxusa Also take credit for any excess social security or railroad retirement tax withheld (discussed in chapter 37). Freetaxusa Underpayment penalty. Freetaxusa If you did not pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty. Freetaxusa In most cases, the IRS can figure this penalty for you. Freetaxusa See Underpayment Penalty for 2013 at the end of this chapter. Freetaxusa Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request 1040-ES Estimated Tax for Individuals 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen Tax Withholding for 2014 This section discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. Freetaxusa This section explains the rules for withholding tax from each of these types of income. Freetaxusa This section also covers backup withholding on interest, dividends, and other payments. Freetaxusa Salaries and Wages Income tax is withheld from the pay of most employees. Freetaxusa Your pay includes your regular pay, bonuses, commissions, and vacation allowances. Freetaxusa It also includes reimbursements and other expense allowances paid under a nonaccountable plan. Freetaxusa See Supplemental Wages , later, for more information about reimbursements and allowances paid under a nonaccountable plan. Freetaxusa If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. Freetaxusa This is explained under Exemption From Withholding , later. Freetaxusa You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. Freetaxusa If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed later under Estimated Tax for 2014 . Freetaxusa Military retirees. Freetaxusa Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. Freetaxusa Household workers. Freetaxusa If you are a household worker, you can ask your employer to withhold income tax from your pay. Freetaxusa A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. Freetaxusa Tax is withheld only if you want it withheld and your employer agrees to withhold it. Freetaxusa If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed later under Estimated Tax for 2014 . Freetaxusa Farmworkers. Freetaxusa Generally, income tax is withheld from your cash wages for work on a farm unless your employer does both of these: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. Freetaxusa Differential wage payments. Freetaxusa When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. Freetaxusa Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. Freetaxusa The wages and withholding will be reported on Form W-2, Wage and Tax Statement. Freetaxusa The credit employers can claim for differential wages paid to activated military reservists is scheduled to expire for wages paid after December 31, 2013. Freetaxusa Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. Freetaxusa The amount you earn in each payroll period. Freetaxusa The information you give your employer on Form W-4. Freetaxusa Form W-4 includes four types of information that your employer will use to figure your withholding. Freetaxusa Whether to withhold at the single rate or at the lower married rate. Freetaxusa How many withholding allowances you claim (each allowance reduces the amount withheld). Freetaxusa Whether you want an additional amount withheld. Freetaxusa Whether you are claiming an exemption from withholding in 2014. Freetaxusa See Exemption From Withholding , later. Freetaxusa Note. Freetaxusa You must specify a filing status and a number of withholding allowances on Form W-4. Freetaxusa You cannot specify only a dollar amount of withholding. Freetaxusa New Job When you start a new job, you must fill out Form W-4 and give it to your employer. Freetaxusa Your employer should have copies of the form. Freetaxusa If you need to change the information later, you must fill out a new form. Freetaxusa If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. Freetaxusa You may be able to avoid overwithholding if your employer agrees to use the part-year method. Freetaxusa See Part-Year Method in chapter 1 of Publication 505 for more information. Freetaxusa Employee also receiving pension income. Freetaxusa If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. Freetaxusa However, you can choose to split your withholding allowances between your pension and job in any manner. Freetaxusa Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. Freetaxusa When this happens, you may need to give your employer a new Form W-4 to change your withholding status or your number of allowances. Freetaxusa If the changes reduce the number of allowances you are claiming or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. Freetaxusa Generally, you can submit a new Form W-4 whenever you wish to change the number of your withholding allowances for any other reason. Freetaxusa Changing your withholding for 2015. Freetaxusa If events in 2014 will decrease the number of your withholding allowances for 2015, you must give your employer a new Form W-4 by December 1, 2014. Freetaxusa If the event occurs in December 2014, submit a new Form W-4 within 10 days. Freetaxusa Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too little or too much. Freetaxusa If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. Freetaxusa You should try to have your withholding match your actual tax liability. Freetaxusa If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. Freetaxusa If too much tax is withheld, you will lose the use of that money until you get your refund. Freetaxusa Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. Freetaxusa Note. Freetaxusa You cannot give your employer a payment to cover withholding on salaries and wages for past pay periods or a payment for estimated tax. Freetaxusa Completing Form W-4 and Worksheets Form W-4 has worksheets to help you figure how many withholding allowances you can claim. Freetaxusa The worksheets are for your own records. Freetaxusa Do not give them to your employer. Freetaxusa Multiple jobs. Freetaxusa If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. Freetaxusa Then split your allowances between the Forms W-4 for each job. Freetaxusa You cannot claim the same allowances with more than one employer at the same time. Freetaxusa You can claim all your allowances with one employer and none with the other(s), or divide them any other way. Freetaxusa Married individuals. Freetaxusa If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Freetaxusa Use only one set of worksheets. Freetaxusa You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. Freetaxusa If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. Freetaxusa Alternative method of figuring withholding allowances. Freetaxusa You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. Freetaxusa For more information, see Alternative method of figuring withholding allowances under Completing Form W-4 and Worksheets in Publication 505, chapter 1. Freetaxusa Personal Allowances Worksheet. Freetaxusa Use the Personal Allowances Worksheet on Form W-4 to figure your withholding allowances based on exemptions and any special allowances that apply. Freetaxusa Deduction and Adjustments Worksheet. Freetaxusa Use the Deduction and Adjustments Worksheet on Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. Freetaxusa Also, complete this worksheet when you have changes to these items to see if you need to change your withholding. Freetaxusa Two-Earners/Multiple Jobs Worksheet. Freetaxusa You may need to complete the Two-Earners/Multiple Jobs Worksheet on Form W-4 if you have more than one job, a working spouse, or are also receiving a pension. Freetaxusa Also, on this worksheet you can add any additional withholding necessary to cover any amount you expect to owe other than income tax, such as self-employment tax. Freetaxusa Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. Freetaxusa You accurately complete all the Form W-4 worksheets that apply to you. Freetaxusa You give your employer a new Form W-4 when changes occur. Freetaxusa But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. Freetaxusa This is most likely to happen in the following situations. Freetaxusa You are married and both you and your spouse work. Freetaxusa You have more than one job at a time. Freetaxusa You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. Freetaxusa You will owe additional amounts with your return, such as self-employment tax. Freetaxusa Your withholding is based on obsolete Form W-4 information for a substantial part of the year. Freetaxusa Your earnings are more than the amount shown under Check your withholding in the instructions at the top of page 1 of Form W-4. Freetaxusa You work only part of the year. Freetaxusa You change the number of your withholding allowances during the year. Freetaxusa Cumulative wage method. Freetaxusa If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. Freetaxusa You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. Freetaxusa You must ask your employer in writing to use this method. Freetaxusa To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. Freetaxusa ) since the beginning of the year. Freetaxusa Publication 505 To make sure you are getting the right amount of tax withheld, get Publication 505. Freetaxusa It will help you compare the total tax to be withheld during the year with the tax you can expect to figure on your return. Freetaxusa It also will help you determine how much, if any, additional withholding is needed each payday to avoid owing tax when you file your return. Freetaxusa If you do not have enough tax withheld, you may have to pay estimated tax, as explained under Estimated Tax for 2014 , later. Freetaxusa You can use the IRS Withholding Calculator at www. Freetaxusa irs. Freetaxusa gov/Individuals, instead of Publication 505 or the worksheets included with Form W-4, to determine whether you need to have your withholding increased or decreased. Freetaxusa Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. Freetaxusa These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. Freetaxusa New Form W-4. Freetaxusa When you start a new job, your employer should have you complete a Form W-4. Freetaxusa Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. Freetaxusa If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. Freetaxusa The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. Freetaxusa No Form W-4. Freetaxusa If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. Freetaxusa Repaying withheld tax. Freetaxusa If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. Freetaxusa Your employer cannot repay any of the tax previously withheld. Freetaxusa Instead, claim the full amount withheld when you file your tax return. Freetaxusa However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. Freetaxusa Your employer can repay the amount that was withheld incorrectly. Freetaxusa If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. Freetaxusa Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. Freetaxusa The exemption applies only to income tax, not to social security or Medicare tax. Freetaxusa You can claim exemption from withholding for 2014 only if both of the following situations apply. Freetaxusa For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. Freetaxusa For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. Freetaxusa Students. Freetaxusa If you are a student, you are not automatically exempt. Freetaxusa See chapter 1 to find out if you must file a return. Freetaxusa If you work only part time or only during the summer, you may qualify for exemption from withholding. Freetaxusa Age 65 or older or blind. Freetaxusa If you are 65 or older or blind, use Worksheet 1-3 or 1-4 in chapter 1 of Publication 505, to help you decide if you qualify for exemption from withholding. Freetaxusa Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. Freetaxusa Instead, see Itemizing deductions or claiming exemptions or credits in chapter 1 of Publication 505. Freetaxusa Claiming exemption from withholding. Freetaxusa To claim exemption, you must give your employer a Form W-4. Freetaxusa Do not complete lines 5 and 6. Freetaxusa Enter “Exempt” on line 7. Freetaxusa If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. Freetaxusa If you claim exemption in 2014, but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. Freetaxusa Your claim of exempt status may be reviewed by the IRS. Freetaxusa An exemption is good for only 1 year. Freetaxusa You must give your employer a new Form W-4 by February 15 each year to continue your exemption. Freetaxusa Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. Freetaxusa The payer can figure withholding on supplemental wages using the same method used for your regular wages. Freetaxusa However, if these payments are identified separately from your regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. Freetaxusa Expense allowances. Freetaxusa Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. Freetaxusa Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. Freetaxusa For more information about accountable and nonaccountable expense allowance plans, see Reimbursements in chapter 26. Freetaxusa Penalties You may have to pay a penalty of $500 if both of the following apply. Freetaxusa You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. Freetaxusa You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. Freetaxusa There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. Freetaxusa The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. Freetaxusa These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. Freetaxusa A simple error or an honest mistake will not result in one of these penalties. Freetaxusa For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a W-4 penalty. Freetaxusa Tips The tips you receive while working on your job are considered part of your pay. Freetaxusa You must include your tips on your tax return on the same line as your regular pay. Freetaxusa However, tax is not withheld directly from tip income, as it is from your regular pay. Freetaxusa Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. Freetaxusa See chapter 6 for information on reporting your tips to your employer. Freetaxusa For more information on the withholding rules for tip income, see Publication 531, Reporting Tip Income. Freetaxusa How employer figures amount to withhold. Freetaxusa The tips you report to your employer are counted as part of your income for the month you report them. Freetaxusa Your employer can figure your withholding in either of two ways. Freetaxusa By withholding at the regular rate on the sum of your pay plus your reported tips. Freetaxusa By withholding at the regular rate on your pay plus a percentage of your reported tips. Freetaxusa Not enough pay to cover taxes. Freetaxusa If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. Freetaxusa See Giving your employer money for taxes in chapter 6. Freetaxusa Allocated tips. Freetaxusa Your employer should not withhold income tax, Medicare tax, social security tax, or railroad retirement tax on any allocated tips. Freetaxusa Withholding is based only on your pay plus your reported tips. Freetaxusa Your employer should refund to you any incorrectly withheld tax. Freetaxusa See Allocated Tips in chapter 6 for more information. Freetaxusa Taxable Fringe Benefits The value of certain noncash fringe benefits you receive from your employer is considered part of your pay. Freetaxusa Your employer generally must withhold income tax on these benefits from your regular pay. Freetaxusa For information on fringe benefits, see Fringe Benefits under Employee Compensation in chapter 5. Freetaxusa Although the value of your personal use of an employer-provided car, truck, or other highway motor vehicle is taxable, your employer can choose not to withhold income tax on that amount. Freetaxusa Your employer must notify you if this choice is made. Freetaxusa For more information on withholding on taxable fringe benefits, see chapter 1 of Publication 505. Freetaxusa Sick Pay Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. Freetaxusa To qualify as sick pay, it must be paid under a plan to which your employer is a party. Freetaxusa If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. Freetaxusa An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate. Freetaxusa However, if you receive sick pay from a third party who is not acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. Freetaxusa See Form W-4S , later. Freetaxusa If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and usually are not taxable. Freetaxusa Union agreements. Freetaxusa If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. Freetaxusa See your union representative or your employer for more information. Freetaxusa Form W-4S. Freetaxusa If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W-4S. Freetaxusa Its instructions contain a worksheet you can use to figure the amount you want withheld. Freetaxusa They also explain restrictions that may apply. Freetaxusa Give the completed form to the payer of your sick pay. Freetaxusa The payer must withhold according to your directions on the form. Freetaxusa Estimated tax. Freetaxusa If you do not request withholding on Form W-4S, or if you do not have enough tax withheld, you may have to make estimated tax payments. Freetaxusa If you do not pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. Freetaxusa See Underpayment Penalty for 2013 at the end of this chapter. Freetaxusa Pensions and Annuities Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. Freetaxusa This rule applies to distributions from: A traditional individual retirement arrangement (IRA); A life insurance company under an endowment, annuity, or life insurance contract; A pension, annuity, or profit-sharing plan; A stock bonus plan; and Any other plan that defers the time you receive compensation. Freetaxusa The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). Freetaxusa Income tax withholding from an ERD is mandatory. Freetaxusa More information. Freetaxusa For more information on taxation of annuities and distributions (including ERDs) from qualified retirement plans, see chapter 10. Freetaxusa For information on IRAs, see chapter 17. Freetaxusa For more information on withholding on pensions and annuities, including a discussion of Form W-4P, see Pensions and Annuities in chapter 1 of Publication 505. Freetaxusa Gambling Winnings Income tax is withheld at a flat 25% rate from certain kinds of gambling winnings. Freetaxusa Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding. Freetaxusa Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or lottery. Freetaxusa Any other wager, if the proceeds are at least 300 times the amount of the bet. Freetaxusa It does not matter whether your winnings are paid in cash, in property, or as an annuity. Freetaxusa Winnings not paid in cash are taken into account at their fair market value. Freetaxusa Exception. Freetaxusa Gambling winnings from bingo, keno, and slot machines generally are not subject to income tax withholding. Freetaxusa However, you may need to provide the payer with a social security number to avoid withholding. Freetaxusa See Backup withholding on gambling winnings in chapter 1 of Publication 505. Freetaxusa If you receive gambling winnings not subject to withholding, you may need to pay estimated tax. Freetaxusa See Estimated Tax for 2014 , later. Freetaxusa If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Freetaxusa See Underpayment Penalty for 2013 at the end of this chapter. Freetaxusa Form W-2G. Freetaxusa If a payer withholds income tax from your gambling winnings, you should receive a Form W-2G, Certain Gambling Winnings, showing the amount you won and the amount withheld. Freetaxusa Report the tax withheld on line 62 of Form 1040. Freetaxusa Unemployment Compensation You can choose to have income tax withheld from unemployment compensation. Freetaxusa To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. Freetaxusa All unemployment compensation is taxable. Freetaxusa So, if you do not have income tax withheld, you may have to pay estimated tax. Freetaxusa See Estimated Tax for 2014 , later. Freetaxusa If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Freetaxusa For information, see Underpayment Penalty for 2013 at the end of this chapter. Freetaxusa Federal Payments You can choose to have income tax withheld from certain federal payments you receive. Freetaxusa These payments are: Social security benefits, Tier 1 railroad retirement benefits, Commodity credit corporation loans you choose to include in your gross income, Payments under the Agricultural Act of 1949 (7 U. Freetaxusa S. Freetaxusa C. Freetaxusa 1421 et. Freetaxusa seq. Freetaxusa ), as amended, or title II of the Disaster Assistance Act of 1988, that are treated as insurance proceeds and that you receive because: Your crops were destroyed or damaged by drought, flood, or any other natural disaster, or You were unable to plant crops because of a natural disaster described in (a), and Any other payment under Federal law as determined by the Secretary. Freetaxusa To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. Freetaxusa If you do not choose to have income tax withheld, you may have to pay estimated tax. Freetaxusa See Estimated Tax for 2014 , later. Freetaxusa If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Freetaxusa For information, see Underpayment Penalty for 2013 at the end of this chapter. Freetaxusa More information. Freetaxusa For more information about the tax treatment of social security and railroad retirement benefits, see chapter 11. Freetaxusa Get Publication 225, Farmer's Tax Guide, for information about the tax treatment of commodity credit corporation loans or crop disaster payments. Freetaxusa Backup Withholding Banks or other businesses that pay you certain kinds of income must file an information return (Form 1099) with the IRS. Freetaxusa The information return shows how much you were paid during the year. Freetaxusa It also includes your name and taxpayer identification number (TIN). Freetaxusa TINs are explained in chapter 1 under Social Security Number (SSN) . Freetaxusa These payments generally are not subject to withholding. Freetaxusa However, “backup” withholding is required in certain situations. Freetaxusa Backup withholding can apply to most kinds of payments that are reported on Form 1099. Freetaxusa The payer must withhold at a flat 28% rate in the following situations. Freetaxusa You do not give the payer your TIN in the required manner. Freetaxusa The IRS notifies the payer that the TIN you gave is incorrect. Freetaxusa You are required, but fail, to certify that you are not subject to backup withholding. Freetaxusa The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. Freetaxusa The IRS will do this only after it has mailed you four notices over at least a 210-day period. Freetaxusa See Backup Withholding in chapter 1 of Publication 505 for more information. Freetaxusa Penalties. Freetaxusa There are civil and criminal penalties for giving false information to avoid backup withholding. Freetaxusa The civil penalty is $500. Freetaxusa The criminal penalty, upon conviction, is a fine of up to $1,000 or imprisonment of up to 1 year, or both. Freetaxusa Estimated Tax for 2014 Estimated tax is the method used to pay tax on income that is not subject to withholding. Freetaxusa This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. Freetaxusa You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough. Freetaxusa Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. Freetaxusa If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Freetaxusa If you do not pay enough by the due date of each payment period (see When To Pay Estimated Tax , later), you may be charged a penalty even if you are due a refund when you file your tax return. Freetaxusa For information on when the penalty applies, see Underpayment Penalty for 2013 at the end of this chapter. Freetaxusa Who Does Not Have To Pay Estimated Tax If you receive salaries or wages, you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings. Freetaxusa To do this, give a new Form W-4 to your employer. Freetaxusa See chapter 1 of Publication 505. Freetaxusa Estimated tax not required. Freetaxusa You do not have to pay estimated tax for 2014 if you meet all three of the following conditions. Freetaxusa You had no tax liability for 2013. Freetaxusa You were a U. Freetaxusa S. Freetaxusa citizen or resident alien for the whole year. Freetaxusa Your 2013 tax year covered a 12-month period. Freetaxusa You had no tax liability for 2013 if your total tax was zero or you did not have to file an income tax return. Freetaxusa For the definition of “total tax” for 2013, see Publication 505, chapter 2. Freetaxusa Who Must Pay Estimated Tax If you owe additional tax for 2013, you may have to pay estimated tax for 2014. Freetaxusa You can use the following general rule as a guide during the year to see if you will have enough withholding, or if you should increase your withholding or make estimated tax payments. Freetaxusa General rule. Freetaxusa In most cases, you must pay estimated tax for 2014 if both of the following apply. Freetaxusa You expect to owe at least $1,000 in tax for 2014, after subtracting your withholding and refundable credits. Freetaxusa You expect your withholding plus your refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 tax return, or 100% of the tax shown on your 2013 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers, later). Freetaxusa Your 2013 tax return must cover all 12 months. Freetaxusa If the result from using the general rule above suggests that you will not have enough withholding, complete the 2014 Estimated Tax Worksheet in Publication 505 for a more accurate calculation. Freetaxusa Special rules for farmers, fishermen, and higher income taxpayers. Freetaxusa If at least two-thirds of your gross income for tax year 2013 or 2014 is from farming or fishing, substitute 662/3% for 90% in (2a) under the General rule, earlier. Freetaxusa If your AGI for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing a separate return), substitute 110% for 100% in (2b) under General rule , earlier. Freetaxusa See Figure 4-A and Publication 505, chapter 2 for more information. Freetaxusa Figure 4-A. Freetaxusa Do You Have To Pay Estimated Tax? Please click here for the text description of the image. Freetaxusa Figure 4-A Do You Have To Pay Estimated Tax? Aliens. Freetaxusa Resident and nonresident aliens also may have to pay estimated tax. Freetaxusa Resident aliens should follow the rules in this chapter unless noted otherwise. Freetaxusa Nonresident aliens should get Form 1040-ES (NR), U. Freetaxusa S. Freetaxusa Estimated Tax for Nonresident Alien Individuals. Freetaxusa You are an alien if you are not a citizen or national of the United States. Freetaxusa You are a resident alien if you either have a green card or meet the substantial presence test. Freetaxusa For more information about the substantial presence test, see Publication 519, U. Freetaxusa S. Freetaxusa Tax Guide for Aliens. Freetaxusa Married taxpayers. Freetaxusa If you qualify to make joint estimated tax payments, apply the rules discussed here to your joint estimated income. Freetaxusa You and your spouse can make joint estimated tax payments even if you are not living together. Freetaxusa However, you and your spouse cannot make joint estimated tax payments if: You are legally separated under a decree of divorce or separate maintenance, You and your spouse have different tax years, or Either spouse is a nonresident alien (unless that spouse elected to be treated as a resident alien for tax purposes (see chapter 1 of Publication 519)). Freetaxusa If you do not qualify to make joint estimated tax payments, apply these rules to your separate estimated income. Freetaxusa Making joint or separate estimated tax payments will not affect your choice of filing a joint tax return or separate returns for 2014. Freetaxusa 2013 separate returns and 2014 joint return. Freetaxusa If you plan to file a joint return with your spouse for 2014, but you filed separate returns for 2013, your 2013 tax is the total of the tax shown on your separate returns. Freetaxusa You filed a separate return if you filed as single, head of household, or married filing separately. Freetaxusa 2013 joint return and 2014 separate returns. Freetaxusa If you plan to file a separate return for 2014 but you filed a joint return for 2013, your 2013 tax is your share of the tax on the joint return. Freetaxusa You file a separate return if you file as single, head of household, or married filing separately. Freetaxusa To figure your share of the tax on the joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2013 using the same filing status as for 2014. Freetaxusa Then multiply the tax on the joint return by the following fraction. Freetaxusa The tax you would have paid had you filed a separate return The total tax you and your spouse would have paid had you filed separate returns Example. Freetaxusa Joe and Heather filed a joint return for 2013 showing taxable income of $48,500 and a tax of $6,386. Freetaxusa Of the $48,500 taxable income, $40,100 was Joe's and the rest was Heather's. Freetaxusa For 2014, they plan to file married filing separately. Freetaxusa Joe figures his share of the tax on the 2013 joint return as follows. Freetaxusa Tax on $40,100 based on a separate return $5,960 Tax on $8,400 based on a separate return 843 Total $6,803 Joe's percentage of total ($5,960 ÷ $6,803) 87. Freetaxusa 6% Joe's share of tax on joint return ($6,386 × 87. Freetaxusa 6%) $5,594 How To Figure Estimated Tax To figure your estimated tax, you must figure your expected adjusted gross income (AGI), taxable income, taxes, deductions, and credits for the year. Freetaxusa When figuring your 2014 estimated tax, it may be helpful to use your income, deductions, and credits for 2013 as a starting point. Freetaxusa Use your 2013 federal tax return as a guide. Freetaxusa You can use Form 1040-ES and Publication 505 to figure your estimated tax. Freetaxusa Nonresident aliens use Form 1040-ES (NR) and Publication 505 to figure estimated tax (see chapter 8 of Publication 519 for more information). Freetaxusa You must make adjustments both for changes in your own situation and for recent changes in the tax law. Freetaxusa For a discussion of these changes, visit IRS. Freetaxusa gov. Freetaxusa For more complete information on how to figure your estimated tax for 2014, see chapter 2 of Publication 505. Freetaxusa When To Pay Estimated Tax For estimated tax purposes, the tax year is divided into four payment periods. Freetaxusa Each period has a specific payment due date. Freetaxusa If you do not pay enough tax by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your income tax return. Freetaxusa The payment periods and due dates for estimated tax payments are shown next. Freetaxusa For the period: Due date:* Jan. Freetaxusa 1 – March 31 April 15 April 1 – May 31 June 16 June 1 – August 31 Sept. Freetaxusa 15 Sept. Freetaxusa 1– Dec. Freetaxusa 31 Jan. Freetaxusa 15, next year *See Saturday, Sunday, holiday rule and January payment . Freetaxusa Saturday, Sunday, holiday rule. Freetaxusa If the due date for 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. Freetaxusa January payment. Freetaxusa If you file your 2014 Form 1040 or Form 1040A by January 31, 2015, and pay the rest of the tax you owe, you do not need to make the payment due on January 15, 2015. Freetaxusa Fiscal year taxpayers. Freetaxusa If your tax year does not start on January 1, see the Form 1040-ES instructions for your payment due dates. Freetaxusa When To Start You do not have to make estimated tax payments until you have income on which you will owe income tax. Freetaxusa If you have income subject to estimated tax during the first payment period, you must make your first payment by the due date for the first payment period. Freetaxusa You can pay all your estimated tax at that time, or you can pay it in installments. Freetaxusa If you choose to pay in installments, make your first payment by the due date for the first payment period. Freetaxusa Make your remaining installment payments by the due dates for the later periods. Freetaxusa No income subject to estimated tax during first period. Freetaxusa If you do not have income subject to estimated tax until a later payment period, you must make your first payment by the due date for that period. Freetaxusa 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. Freetaxusa The following chart shows when to make installment payments. Freetaxusa If you first have income on which you must pay estimated tax: Make a payment by:* Make later installments by:* Before April 1 April 15 June 16 Sept. Freetaxusa 15 Jan. Freetaxusa 15 next year April 1–May 31 June 16 Sept. Freetaxusa 15 Jan. Freetaxusa 15 next year June 1–Aug. Freetaxusa 31 Sept. Freetaxusa 15 Jan. Freetaxusa 15 next year After Aug. Freetaxusa 31 Jan. Freetaxusa 15 next year (None) *See Saturday, Sunday, holiday rule and January payment . Freetaxusa How much to pay to avoid a penalty. Freetaxusa To determine how much you should pay by each payment due date, see How To Figure Each Payment, next. Freetaxusa 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. Freetaxusa You can figure your required payment for each period by using either the regular installment method or the annualized income installment method. Freetaxusa These methods are described in chapter 2 of Publication 505. Freetaxusa If you do not pay enough during each payment period, you may be charged a penalty even if you are due a refund when you file your tax return. Freetaxusa If the earlier discussion of No income subject to estimated tax during first period or the later discussion of Change in estimated tax applies to you, you may benefit from reading Annualized Income Installment Method in chapter 2 of Publication 505 for information on how to avoid a penalty. Freetaxusa Underpayment penalty. Freetaxusa Under the regular installment method, if your estimated tax payment for any period is less than one-fourth of your estimated tax, you may be charged a penalty for underpayment of estimated tax for that period when you file your tax return. Freetaxusa Under the annualized income installment method, your estimated tax payments vary with your income, but the amount required must be paid each period. Freetaxusa See chapter 4 of Publication 505 for more information. Freetaxusa Change in estimated tax. Freetaxusa After you make an estimated tax payment, changes in your income, adjustments, deductions, credits, or exemptions may make it necessary for you to refigure your estimated tax. Freetaxusa 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. Freetaxusa Estimated Tax Payments Not Required You do not have to pay estimated tax if your withholding in each payment period is at least as much as: One-fourth of your required annual payment, or Your required annualized income installment for that period. Freetaxusa You also do not have to pay estimated tax if you will pay enough through withholding to keep the amount you owe with your return under $1,000. Freetaxusa How To Pay Estimated Tax There are several ways to pay estimated tax. Freetaxusa Credit an overpayment on your 2013 return to your 2014 estimated tax. Freetaxusa Pay by direct transfer from your bank account, or pay by credit or debit card using a pay-by-phone system or the Internet. Freetaxusa Send in your payment (check or money order) with a payment voucher from Form 1040-ES. Freetaxusa Credit an Overpayment If you show an overpayment of tax after completing your Form 1040 or Form 1040A for 2013, you can apply part or all of it to your estimated tax for 2014. Freetaxusa On line 75 of Form 1040, or line 44 of Form 1040A, enter the amount you want credited to your estimated tax rather than refunded. Freetaxusa Take the amount you have credited into account when figuring your estimated tax payments. Freetaxusa You cannot have any of the amount you credited to your estimated tax refunded to you until you file your tax return for the following year. Freetaxusa You also cannot use that overpayment in any other way. Freetaxusa Pay Online Paying online is convenient and secure and helps make sure we get your payments on time. Freetaxusa You can pay using either of the following electronic payment methods. Freetaxusa Direct transfer from your bank account. Freetaxusa Credit or debit card. Freetaxusa To pay your taxes online or for more information, go to www. Freetaxusa irs. Freetaxusa gov/e-pay. Freetaxusa Pay by Phone Paying by phone is another safe and secure method of paying electronically. Freetaxusa Use one of the following methods. Freetaxusa Direct transfer from your bank account. Freetaxusa Credit or debit card. Freetaxusa To pay by direct transfer from your bank account, call 1-800-555-4477 (English), 1-800-244-4829 (Espanol). Freetaxusa People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD can call 1-800-733-4829. Freetaxusa To pay using a credit or debit card, you can call one of the following service providers. Freetaxusa There is a convenience fee charged by these providers that varies by provider, card type, and payment amount. Freetaxusa WorldPay 1-888-9-PAY-TAXTM(1-888-972-9829) www. Freetaxusa payUSAtax. Freetaxusa com Official Payments Corporation 1-888-UPAY-TAXTM (1-888-872-9829) www. Freetaxusa officialpayments. Freetaxusa com Link2Gov Corporation 1-888-PAY-1040TM (1-888-729-1040) www. Freetaxusa PAY1040. Freetaxusa com For the latest details on how to pay by phone, go to www. Freetaxusa irs. Freetaxusa gov/e-pay. Freetaxusa Pay by Check or Money Order Using the Estimated Tax Payment Voucher Each payment of estimated tax by check or money order must be accompanied by a payment voucher from Form 1040-ES. Freetaxusa During 2013, if you: made at least one estimated tax payment but not by electronic means, did not use software or a paid preparer to prepare or file your return, then you should receive a copy of the 2014 Form 1040-ES/V. Freetaxusa The enclosed payment vouchers will be preprinted with your name, address, and social security number. Freetaxusa Using the preprinted vouchers will speed processing, reduce the chance of error, and help save processing costs. Freetaxusa Use the window envelopes that came with your Form 1040-ES package. Freetaxusa If you use your own envelopes, make sure you mail your payment vouchers to the address shown in the Form 1040-ES instructions for the place where you live. Freetaxusa Note. Freetaxusa These criteria can change without notice. Freetaxusa If you do not receive a Form 1040-ES/V package and you are required to make an estimated tax payment, you should go to www. Freetaxusa irs. Freetaxusa gov and print a copy of Form 1040-ES which includes four blank payment vouchers. Freetaxusa Complete one of these and make your payment timely to avoid penalties for paying late. Freetaxusa Do not use the address shown in the Form 1040 or Form 1040A instructions for your estimated tax payments. Freetaxusa If you did not pay estimated tax last year, you can order Form 1040-ES from the IRS (see inside back cover of this publication) or download it from IRS. Freetaxusa gov. Freetaxusa Follow the instructions to make sure you use the vouchers correctly. Freetaxusa Joint estimated tax payments. Freetaxusa If you file a joint return and are making joint estimated tax payments, enter the names and social security numbers on the payment voucher in the same order as they will appear on the joint return. Freetaxusa Change of address. Freetaxusa You must notify the IRS if you are making estimated tax payments and you changed your address during the year. Freetaxusa Complete Form 8822, Change of Address, and mail it to the address shown in the instructions for that form. Freetaxusa Credit for Withholding and Estimated Tax for 2013 When you file your 2013 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. Freetaxusa Also take credit for the estimated tax you paid for 2013. Freetaxusa These credits are subtracted from your total tax. Freetaxusa Because these credits are refundable, you should file a return and claim these credits, even if you do not owe tax. Freetaxusa Two or more employers. Freetaxusa If you had two or more employers in 2013 and were paid wages of more than $113,700, too much social security or tier 1 railroad retirement tax may have been withheld from your pay. Freetaxusa You may be able to claim the excess as a credit against your income tax when you file your return. Freetaxusa See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld in chapter 37. Freetaxusa Withholding If you had income tax withheld during 2013, you should be sent a statement by January 31, 2014, showing your income and the tax withheld. Freetaxusa Depending on the source of your income, you should receive: Form W-2, Wage and Tax Statement, Form W-2G, Certain Gambling Winnings, or A form in the 1099 series. Freetaxusa Forms W-2 and W-2G. Freetaxusa If you file a paper return, always file Form W-2 with your income tax return. Freetaxusa File Form W-2G with your return only if it shows any federal income tax withheld from your winnings. Freetaxusa You should get at least two copies of each form. Freetaxusa If you file a paper return, attach one copy to the front of your federal income tax return. Freetaxusa Keep one copy for your records. Freetaxusa You also should receive copies to file with your state and local returns. Freetaxusa Form W-2 Your employer is required to provide or send Form W-2 to you no later than January 31, 2014. Freetaxusa You should receive a separate Form W-2 from each employer you worked for. Freetaxusa If you stopped working before the end of 2013, your employer could have given you your Form W-2 at any time after you stopped working. Freetaxusa However, your employer must provide or send it to you by January 31, 2014. Freetaxusa 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. Freetaxusa If you have not received your Form W-2 by January 31, you should ask your employer for it. Freetaxusa If you do not receive it by February 15, call the IRS. Freetaxusa 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. Freetaxusa Include the federal income tax withheld (as shown in box 2 of Form W-2) on: Line 62 if you file Form 1040, Line 36 if you file Form 1040A, or Line 7 if you file Form 1040EZ. Freetaxusa In addition, Form W-2 is used to report any taxable sick pay you received and any income tax withheld from your sick pay. Freetaxusa Form W-2G If you had gambling winnings in 2013, the payer may have withheld income tax. Freetaxusa If tax was withheld, the payer will give you a Form W-2G showing the amount you won and the amount of tax withheld. Freetaxusa Report the amounts you won on line 21 of Form 1040. Freetaxusa Take credit for the tax withheld on line 62 of Form 1040. Freetaxusa If you had gambling winnings, you must use Form 1040; you cannot use Form 1040A or Form 1040EZ. Freetaxusa The 1099 Series Most forms in the 1099 series are not filed with your return. Freetaxusa These forms should be furnished to you by January 31, 2014 (or, for Forms 1099-B, 1099-S, and certain Forms 1099-MISC, by February 15, 2014). Freetaxusa Unless instructed to file any of these forms with your return, keep them for your records. Freetaxusa 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-K, Payment Card and Third Party Network Transactions; Form 1099-MISC, Miscellaneous Income; Form 1099-OID, Original Issue Discount; Form 1099-PATR, Taxable Distributions Received from Cooperatives; Form 1099-Q, Payments From Qualified Education Programs; Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Freetaxusa ; Form 1099-S, Proceeds From Real Estate Transactions; Form RRB-1099, Payments by the Railroad Retirement Board. Freetaxusa 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. Freetaxusa See the instructions to these forms for details. Freetaxusa Form 1099-R. Freetaxusa Attach Form 1099-R to your paper return if box 4 shows federal income tax withheld. Freetaxusa Include the amount withheld in the total on line 62 of Form 1040 or line 36 of Form 1040A. Freetaxusa You cannot use Form 1040EZ if you received payments reported on Form 1099-R. Freetaxusa Backup withholding. Freetaxusa If you were subject to backup withholding on income you received during 2013, include the amount withheld, as shown on your Form 1099, in the total on line 62 of Form 1040, line 36 of Form 1040A, or line 7 of Form 1040EZ. Freetaxusa Form Not Correct If you receive a form with incorrect information on it, you should ask the payer for a corrected form. Freetaxusa Call the telephone number or write to the address given for the payer on the form. Freetaxusa The corrected Form W-2G or Form 1099 you receive will have an “X” in the “CORRECTED” box at the top of the form. Freetaxusa A special form, Form W-2c, Corrected Wage and Tax Statement, is used to correct a Form W-2. Freetaxusa In certain situations, you will receive two forms in place of the original incorrect form. Freetaxusa This will happen when your taxpayer identification number is wrong or missing, your name and address are wrong, or you received the wrong type of form (for example, a Form 1099-DIV instead of a Form 1099-INT). Freetaxusa One new form you receive will be the same incorrect form or have the same incorrect information, but all money amounts will be zero. Freetaxusa This form will have an “X” in the “CORRECTED” box at the top of the form. Freetaxusa The second new form should have all the correct information, prepared as though it is the original (the “CORRECTED” box will not be checked). Freetaxusa 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. Freetaxusa S. Freetaxusa Individual Income Tax Return. Freetaxusa Separate Returns If you are married but file a separate return, you can take credit only for the tax withheld from your own income. Freetaxusa Do not include any amount withheld from your spouse's income. Freetaxusa However, different rules may apply if you live in a community property state. Freetaxusa Community property states are listed in chapter 2. Freetaxusa For more information on these rules, and some exceptions, see Publication 555, Community Property. Freetaxusa 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. Freetaxusa For a discussion of how to take credit for withholding on a fiscal year return, see Fiscal Years (FY) in chapter 3 of Publication 505. Freetaxusa Estimated Tax Take credit for all your estimated tax payments for 2013 on line 63 of Form 1040 or line 37 of Form 1040A. Freetaxusa Include any overpayment from 2012 that you had credited to your 2013 estimated tax. Freetaxusa You must use Form 1040 or Form 1040A if you paid estimated tax. Freetaxusa You cannot use Form 1040EZ. Freetaxusa Name changed. Freetaxusa If you changed your name, and you made estimated tax payments using your old name, attach a brief statement to the front of your paper tax return indicating: When you made the payments, The amount of each payment, Your name when you made the payments, and Your social security number. Freetaxusa The statement should cover payments you made jointly with your spouse as well as any you made separately. Freetaxusa Be sure to report the change to the Social Security Administration. Freetaxusa This prevents delays in processing your return and issuing any refunds. Freetaxusa Separate Returns If you and your spouse made separate estimated tax payments for 2013 and you file separate returns, you can take credit only for your own payments. Freetaxusa If you made joint estimated tax payments, you must decide how to divide the payments between your returns. Freetaxusa 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. Freetaxusa If you cannot agree, you must divide the payments in proportion to each spouse's individual tax as shown on your separate returns for 2013. Freetaxusa Divorced Taxpayers If you made joint estimated tax payments for 2013, 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. Freetaxusa 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 2013. Freetaxusa 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. Freetaxusa If you divorced and remarried in 2013, enter your present spouse's SSN in that space and write your former spouse's SSN, followed by “DIV,” to the left of Form 1040, line 63, or Form 1040A, line 37. Freetaxusa Underpayment Penalty for 2013 If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have an underpayment of estimated tax and you may have to pay a penalty. Freetaxusa Generally, you will not have to pay a penalty for 2013 if any of the following apply. Freetaxusa The total of your withholding and estimated tax payments was at least as much as your 2012 tax (or 110% of your 2012 tax if your AGI was more than $150,000, $75,000 if your 2013 filing status is married filing separately) and you paid all required estimated tax payments on time. Freetaxusa The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time. Freetaxusa Your total 2013 tax minus your withholding and refundable credits is less than $1,000. Freetaxusa You did not have a tax liability for 2012 and your 2012 tax year was 12 months, or You did not have any withholding taxes and your current year tax less any household employment taxes is less than $1,000. Freetaxusa See Publication 505, chapter 4, for a definition of “total tax” for 2012 and 2013. Freetaxusa Farmers and fishermen. Freetaxusa Special rules apply if you are a farmer or fisherman. Freetaxusa See Farmers and Fishermen in chapter 4 of Publication 505 for more information. Freetaxusa IRS can figure the penalty for you. Freetaxusa 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. Freetaxusa Generally, the IRS will figure the penalty for you and send you a bill. Freetaxusa However, if you think you are able to lower or eliminate your penalty, you must complete Form 2210 or Form 2210-F and attach it to your paper return. Freetaxusa See chapter 4 of Publication 505. Freetaxusa Prev Up Next Home More Online Publications