|
 |
|
9.1 Estimated Tax: Businesses
Estimated quarterly income taxes for a corporation were not paid. What is
the penalty amount? Is there any way to reduce the penalty?
If the corporation does not pay a required installment of estimated tax by its
due date, it may be subject to a penalty. The penalty is figured separately for each
installment due date. The corporation may owe a penalty for an earlier due date, even
if it paid enough tax later to make up the underpayment. This is true even if the
corporation is due a refund when its return is filed.
Use Form 2220 (PDF), Underpayment of Estimated Tax
by Corporations, to determine if a corporation is subject to the penalty for
underpayment of estimated tax and, if so, the amount of the penalty.
If the corporation is charged a penalty, the amount of the penalty depends on the
following three factors:
The amount of the underpayment.
The period during which the underpayment was due and unpaid.
An interest rate that is published quarterly by the IRS in the Internal Revenue
Bulletin.
The penalty may be waived by IRS on a case-by-case basis if the failure to make
estimated payments was caused by a casualty, disaster, or other unusual circumstance.
For more information, refer to Publication 542 , Corporations and
the
Instructions for Form 2220
References:
Is an S-Corporation required to pay quarterly estimated tax?
Generally, the corporation must make estimated tax payments for the following taxes
if the total of these taxes is $500 or more:
the tax on certain capital gains,
the tax on built-in gains,
the excess net passive income tax, and
the investment credit recapture tax.
For more information regarding estimated tax, refer to
Instructions for Form 1120S, U.S. Income Tax Return for an S Corporation, page 5 and Publication 542, Corporations, page 4.
References:
How do partnerships file and pay quarterly estimated tax payments.
Partnerships file Form 1065 (PDF), U.S. Partnership
Return of Income, to report income and expenses. The partnership passes the information
to the individual partners on Schedule K-1, Form 1065. The partners report the information
and pay any taxes due on Form 1040. Because partners are not employees of the partnership,
no withholding is taken out of their distributions to pay the income and self-employment
taxes on their Forms 1040. The partners may need to pay Estimated Tax Payments using
Form 1040-ES.
Refer to
Instructions for Form 1065, U.S. Partnership Return
of Income and Publication 505, Tax Withholding and Estimated Tax for
additional information.
References:
9.2 Estimated Tax: Farmers & Fishermen
Most of my income is from farming. Are there any special provisions related
to estimated tax payments for farmers?
If you have income from farming, you may be able to avoid making estimated tax
payments by filing your return and paying the entire tax due on or before March 1
of the year your return is due. If March 1 falls on a weekend or legal holiday, you
have until the next business day to file and pay tax. This estimated tax rule generally
applies if at least 2/3 of your total gross income is from farming this year or previous
year. Refer to Publication 225 , Farmer's Tax Guide, and Tax Topic 416 , Farming and Fishing Income, for additional information.
References:
9.3 Estimated Tax: Individuals
What can I do to make sure I will not owe the IRS on my 2004 income tax
return?
You can either increase the amount of income tax withheld from your pay or make
estimated tax payments for 2004. You may change the amount of income tax withheld
from your pay by filing a new Form W-4 (PDF), Employee's
Withholding Allowance Certificate. Form 1040-ES (PDF), Estimated
Tax for Individuals, has a worksheet to see if you need to make estimated tax
payments. For more details, refer to Tax Topic 355, Estimated Tax, or Publication 505, Tax Withholding and Estimated Tax.
References:
How do I know if I have to file quarterly individual estimated tax payments?
Estimated tax payments can be used to pay Federal income tax, self-employment tax,
and household employment tax. To estimate if you need to pay tax on income not subject
to withholding or on other income from which not enough tax is withheld, you need
to calculate if the total tax you'll owe on your annual income tax return will be
covered by the amount of tax you have already had either:
withheld from wages and other payments, or
paid in earlier estimated payments for the year, or
credited to your account from adjustments or overpayments to previously filed
returns.
Generally, you should make estimated tax payments if you will owe tax of $1,000
or more, after withholding and credits, and the total amount of tax withheld and your
credits will be less than the smaller of:
90% of the tax to be shown on your current tax return, or
100% of the tax shown on your prior year's tax return, if your prior year's tax
return covered all 12 months of the year. However, if your prior year's adjusted gross
income exceeded $150,000, or $75,000 if you filed a separate return from your spouse,
then you must pay 110% instead of 100% of last year's tax. (Note: the percentages
change depending on the tax year. Refer to Publication 505, Tax Withholding
and Estimated Tax.)
Estimated tax requirements are different for farmers and fishermen. Publication 505, Tax
Withholding and Estimated Tax, provides more information about these special
estimated tax rules and about estimated tax in general. Get Form 1040-ES (PDF), Estimated Tax for Individuals, to help you figure your estimated
tax liability for 2004.
References:
How do I calculate the amount of estimated tax I will owe?
You should get Form 1040-ES (PDF), Estimated Tax for
Individuals and complete the worksheet on page 4, to help you figure your estimated
tax liability.
References:
Are all the quarterly estimated tax payments the same amount?
Normally, you determine your tax at the first of the year and divide by 4 but this
can change as your income may change for a certain quarter. If your income fluctuates
during the year, you should complete the 2004 Annualized Estimated Tax Worksheet in Publication 505, Tax Withholding and Estimated Tax. The worksheet annualizes your
tax at the end of each period based on a reasonable estimate of your income, deductions,
and other items relating to events that occurred since the beginning of the tax year
through the end of the period. Use the result you figure on line 25d of 2004 Annualized
Estimated Tax Worksheet in Publication 505 to make your estimated tax payments and
complete your payment-vouchers.
References:
Do self-employment taxes need to be paid quarterly or yearly?
Self-employment tax is paid by making quarterly estimated tax payments which include
both income tax and social security tax.
References:
What form will I use to make estimated payments?
Use Form 1040-ES (PDF), Estimated Tax for Individuals,
to estimate your tax liability. Four payment vouchers are included in the 1040ES package
that are used to send your payment to the Internal Revenue Service
References:
Can I combine my estimated tax payment with the payment for my Form 1040?
Estimated tax payments should not be sent with or be included in checks or money
orders for payment of Federal income tax with your return. Mail your estimated tax
payments separately to the address shown in the
Instructions for Form 1040-ES.
For additional information on ensuring proper credit of payments, refer to Tax Topic 158, Ensuring Proper Credit of Payments.
References:
When are the quarterly estimated tax returns due?
Your first estimated tax payment is usually due the 15th of April. You may pay
the entire year's estimated tax at that time, or you may pay your estimated tax in
four payments. The four payments are due April 15th, June 15th, September 15, and
January 15th of the following year.
If the due date for making an estimated tax payment falls on a Saturday, Sunday,
or legal holiday, the payment will be on time if you make it on the next day that
is not a Saturday, Sunday, or legal holiday. For example, a payment due Saturday,
January 15, 2005 will be on time if you make it by Tuesday January 18, 2005. Note:
Monday January 17, 2005 is a legal holiday.
References:
Where do I send my individual estimated tax payments?
Where you send your individual estimated tax payments depends on where you live.
Refer to Form 1040-ES (PDF) , page 6 for the correct mailing
address.
References:
How do I report the estimated payments I have made when I file my taxes
at the end of the year?
Take credit for all your estimated tax payments for 2003 on line 62 of Form 1040 (PDF) , U.S. Individual Income Tax Return , or
line 40 of Form 1040A (PDF) , U.S. Individual Income
Tax Return .
References:
Can I make my quarterly individual estimated tax payments by credit card?
You can generally pay part or all of your estimated tax by using a credit card
(American Express Card®, DiscoverCard®, MasterCard®, or Visa® card).
Payments can be made by phone or Internet. There are two credit card processors
(also referred to as service providers), which offer this service. Service providers
charge you a convenience fee for the service.
References:
I'm concerned because my check payment to the IRS has not been cashed yet.
What should I do?
You may call 1-800-829-1040 and ask an IRS representative if the payment has been
credited to your account. If it has not, you may choose to place a stop-payment on
the original check and reissue the payment.
I was self-employed for the first half of the year and made estimated tax
payments. Now, I am a wage earner and my employer withholds taxes. Must I continue
to make estimated tax payments?
In general, you may owe a penalty for 2003 if the total of your withholding and
estimated tax payments did not equal at least the smaller of:
90% of your 2003 tax, or
100%* of your 2002 tax. (Your 2002 tax return must cover a 12-month period.)
If your timely and correct estimated tax payments plus the Federal withholding
from your wages meet the estimated tax requirements shown above, you will not need
to make any additional payments for estimated tax, nor will you need to inform the
IRS of the change.
*If the total amount of your withholding and estimated tax payments equalled 100%
of your 2002 income tax liability, you will not be subject to the failure to pay estimated
tax penalty. However, not making additional estimated tax payments may mean that you
have a large income tax liability when you file your income tax return. (If you are
a higher income taxpayer with a AGI of more than $150,000 ($75,000 if your filing
status is married filing separate)), substitute 110% for 100% if last year is 2002.
Note: the percentage change depending on the tax refer to Publication 505 , Tax
Withholding and Estimated Tax.
References:
I filed a quarterly 1040-ES in April and paid the difference between my
total tax bill last year and this year's withholdings. Therefore, I believe I have
paid the minimum amount of estimated tax payments. Do I have to submit a Form 1040-ES
for the, second, third, and fourth quarters?
Since you have paid 100%* of your prior year income tax liability, you will not
be subject to the failure to pay estimated tax penalty. However, not making additional
estimated tax payments may mean that you have a large income tax liability when you
do file your income tax return.
*Substitute 110% for 100% if:
1. Your AGI exceed $150,000 on the prior year return and your filing status for
the prior year is anything other than MFS or
2. You filed MFS for the prior year and AGI exceeded $75,000.
References:
Is there a way to have Federal income tax withheld from unemployment compensation,
in lieu of making estimated tax payments?
You may have Federal income tax withheld from unemployment compensation by filing Form W-4V (PDF), Voluntary Withholding Request with the payor.
For additional information on unemployment compensation, refer to Tax Topic 418, Unemployment
Compensation.
References:
9.4 Estimated Tax: Large Gains, Lump-sum Distributions, etc.
I received a lump-sum distribution from a retirement account, but no taxes
were withheld. How do I determine whether estimated taxes should be paid?
You should obtain Form 1040-ES (PDF), Estimated
Tax for Individuals , to help you figure your estimated tax liability. Since
this situation involves a lump-sum distribution, you may qualify for the ten-year
tax option. Lump-sum distributions must meet specific requirements to qualify for
optional tax treatment. Thus, you may also need Form 4972 (PDF) , Tax
on Lump-Sum Distributions , to make an accurate estimate of your income tax
liability.
References:
I will be taking a Required Minimum Distribution (RMD) at the end of the
year on my IRA. Is estimated tax due when the distribution is made or is 1/4th due
with each estimated tax submission?
The tax on the distribution is not due until you actually receive the income. Thus,
your last fourth quarter estimated tax payment should reflect the increase in your
tax liability. You could still increase your quarterly estimated tax payments or increase
your Federal income tax withholding during the earlier part of the year to cover the
tax liability.
If you have the proper amount withheld, you may not be required to make estimated
tax payments nor have to file Form 2210 (PDF), Underpayment
of Estimated Tax by Individuals, Estates and Trusts, with your tax return (as
you would if you just increased the last estimated tax payment). If you wait and make
an increased estimated tax payment for the fourth quarter, you would have to file
Form 2210 with your tax return because we do not know when you receive the income.
Since you did not receive the income evenly throughout the year, you have to tell
us when the income was received by filing Form 2210.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 2210 (PDF), Underpayment of Estimated
Tax by Individuals, Estates and Trusts
If I anticipate a sizable capital gain on the sale of an investment during
the year, do I need to make a quarterly estimated tax payment during the tax year?
If you first receive income subject to estimated tax during a period other than
the first quarter, you must make your first payment by the due date for the period
the income is received. You can pay your entire estimated tax by the due date for
the period the income is received, or you can pay it in installments by the due date
for that period and the due dates for the remaining periods.
If you are making estimated tax payments you can increase your quarterly estimated
tax payments or increase your Federal income tax withholding to cover the tax liability.
If you have the proper amount withheld you may not be required to make estimated tax
payments nor have to file Form 2210 (PDF), Underpayment
of Estimated Tax by Individuals, Estates and Trusts, with your tax return (as
you would if you just increased the remaining estimated tax payments). If you wait
and make increased estimated tax payment in the later quarters, you would have to
file Form 2210 with your tax return because we do not know when you received the income.
Since you really did not receive the income evenly throughout the year, you have to
tell us when the income was received by filing Form 2210.
References:
If I sell stock at a gain, do I pay estimated taxes on the entire profit
when the next quarterly payment is due or can I divide it by the number of quarterly
payments left for the year and make these equal payments at each subsequent quarter?
If you first receive income subject to estimated tax during a period other than
the first quarter, you must make your first payment by the due date for the period
the income is received. You can pay your entire estimated tax by the due date for
the period the income is received, or you can pay it in installments by the due date
for that period and the due dates for the remaining periods.
References:
Since mutual fund distributions are typically made in the last quarter of
a calendar year, is it sufficient to pay income taxes on the distributions by January
15th, or am I required to make quarterly estimated tax payments?
You do not have to make estimated tax payments until you receive income on which
you will owe the tax. Since your mutual fund distributions are not made until the
last quarter of the year, you need only make an estimated tax payment for the last
quarter by January 15th. However, even if you make an adequate payment of tax by January
15th, you should also complete Form 2210 (PDF), Underpayment
of Estimated Tax by Individuals, Estates and Trusts, and attach it to your income
tax return when you file, you may be assessed an estimated tax penalty by the IRS
service center when your return is processed, otherwise because estimated tax payments
are normally made in four equal installments and the IRS will not know your liability
occurred in the fourth quarter. You should check the box on the front page of the
Form 2210 to select the Annualized Income Installment method, and then complete Schedule
AI on page 3. When you compute the penalty on page 2 of that form using the numbers
from Schedule AI, your penalty will be $0 if you made an adequate payment. Even if
you did not make the January 15th payment, or made an inadequate payment, the annualized
income method on Form 2210 may significantly reduce the estimated tax penalty.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 2210 (PDF), Underpayment of Estimated
Tax by Individuals, Estates and Trusts
On December 20, I received a large mutual fund distribution. Due to the
large distribution I'm going to owe $7,000 when I file my return. Is it okay to just
pay the $7,000 when I file my return?
If the $7,000 in tax is a result of a distribution not covered by prepayments of
tax, either through income tax withholding or estimated tax payments, you should make
an estimated tax payment by January 15th of the next year. If you wait to pay the
$7,000 with your return, you may be penalized for an underpayment of estimated taxes.
Even if you make an adequate payment of tax by January 15th, you may be assessed an
estimated tax penalty by the IRS service center when your return is processed unless
you file Form 2210 (PDF), Underpayment of Estimated
Tax by Individuals, Estates and Trusts . This is because estimated tax payments
are normally made in four equal installments and the IRS will not know your liability
occurred in the fourth quarter unless you explained when the income was received.
You may be subject to the penalty if you owe at least $1,000 in tax after subtracting
your withholding and credits from your tax liability, and you did not prepay at least
90% of your current year's tax or 100% of your previous year's tax. (The latter percentage
is higher for higher (110 %) ($75,000 if MFS) income taxpayers with adjusted gross
incomes from the previous year of more than $150,000.)
If you make an adequate payment by January 15th but made no earlier estimated tax
payments, use Form 2210 (PDF), Underpayment of Estimated
Tax by Individuals, Estates and Trusts, to compute your penalty. Check the box
on the front page selecting the Annualized Income Installment method, and then complete
Schedule AI on page 3. When you compute the penalty on page 2 of that form using the
numbers from Schedule AI, your penalty will be $0 if you made an adequate payment.
Even if you did not make the January 15th payment or made an adequate payment, the
annualized income method on Form 2210 may significantly reduce the estimated tax penalty.
For more information on estimated tax payments and the underpayment of estimated
tax penalty, refer to Publication 505, Tax Withholding and Estimated Tax.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 2210 (PDF), Underpayment of Estimated
Tax by Individuals, Estates and Trusts
9.5 Estimated Tax: Penalty Questions
What is the minimum amount of estimated tax that I am required to pay without
incurring any penalty or interest charges?
In general, you may owe a penalty for 2003 if the total of your withholding and
estimated tax payments did not equal at least the smaller of:
90% of your 2003 tax (current year tax), or
100% of your 2002 tax (prior year tax). (Your 2002 tax return must cover a 12-month
period.)
Your 2003 tax, for this purpose, is your Total tax for 2003. There are special
rules for farmers and fishermen, and for certain higher income taxpayers.
Generally, you do not have to pay an underpayment penalty if either of the following
conditions apply:
Your total tax is less than $1,000, (less withholding and credits) or
You had no tax liability last year.
Farmers and fishermen. If at least two-thirds of your gross
income for 2002 or 2003 is from farming or fishing, you are required to make one installment
equal to 66 2 /3% of your 2003 tax (current year tax).
Higher income taxpayers. If less than two-thirds of your gross income for 2003
or 2002 is from farming or fishing and your adjusted gross income (AGI) for 2002 was
more than $150,000 ($75,000 if your filing status is married filing a separate return
in 2002), substitute 110% for 100% in (2) above.
References:
What is meant by "no tax liability" in the exceptions to the estimated tax
penalty?
You do not have to pay estimated tax for 2003 if you meet all three of the following
conditions.
1. You had no tax liability for 2002.
2. You were a U.S. citizen or resident for the whole year.
3. Your 2002 tax year covered a 12-month period.
You had no tax liability for 2002 if your total tax was zero or you did not have
to file an income tax return.
Total tax for 2002. Your 2002 total tax on Form 1040 (PDF) is the amount on line 61 reduced by the total of the amounts on line 57,
64, and 66, any credit from Form 4136 (PDF) included on
line 68, any recapture of a federal mortgage subsidy and any uncollected social security,
Medicare, or railroad retirement tax included on line 61, and any tax on excess contributions
to IRAs and medical savings accounts, and on excess accumulations in qualified retirement
plans from Forms 5329 included on line 58.
On Form 1040A (PDF) , it is line 38 reduced by the amount
on line 41 and 42. On Form 1040EZ (PDF) , it is line
10 reduced by line 8.
For additional information on this topic refer to Form 1040-ES (PDF), Estimated Tax for Individuals , and Publication 505, Tax
Withholding and Estimated Tax .
References:
I was a student in 2002 and had no income. In 2003, I started working and
did not have enough tax withheld. Will I owe a penalty because I did not make estimated
tax payments?
You will not have to pay a penalty for 2003 if you did not owe tax for 2002. For
additional information on the penalty for underpayment of estimated tax, refer to Tax Topic 306 , Penalty for Underpayment of Estimated Tax. For information
on how to increase the amount of tax withheld by your employer, refer to Tax Topic 753, Form W-4 (PDF) , Employee's Withholding Allowance Certificate .
For information on estimated tax requirements, refer to Tax Topic 355, Estimated
Tax or Publication 505, Tax Withholding and Estimated Tax .
References:
I was late mailing my estimated tax payment. To minimize the penalty, how
do I compute the interest rate and late payment charges in order to send an additional
check to the IRS as soon as possible?
The failure to pay estimated tax penalty is based upon the number of days that
the payment is late and the current interest rate. Therefore, we cannot give a percentage
that applies for all cases. To compute the amount of the estimated tax penalty you
will need to refer to Publication 505, Tax Withholding and Estimated Tax and
Form 2210 (PDF), Underpayment of Estimated
Tax by Individuals, Estates and Trusts for directions on computing the penalty.
Since the computations can get rather complicated, you may want to just send in the
estimated tax payment and wait for a bill from us for the penalty.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 2210 (PDF), Underpayment of Estimated
Tax by Individuals, Estates and Trusts
Why should I owe a penalty for failing to pay estimated taxes when I received
a refund for the prior year?
Since the estimated tax penalty is based upon your prior or current year income
tax liability (not withholding or estimated tax payments), you may be subject to the
penalty even if you had a refund for your prior year return.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 2210 (PDF), Underpayment of Estimated
Tax by Individuals, Estates and Trusts
|
|
|
|
