I'm concerned because my check payment to the IRS has not been cashed yet. What should I do?

You can call (800) 829-1040 and ask an IRS representative if the payment has been credited to your account. If it has not and the check has not cleared your financial institution, you may choose to place a stop-payment on the original check and send another payment.

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:

• Publication 542, Corporations
• Form 2220 (PDF), Underpayment of Estimated Tax by Corporations
• Instructions for Form 2220

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:

• Publication 542, Corporations
• Instructions for Form 1120S

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:

• Publication 225 , Farmer's Tax Guide
• Tax Topic 416, Farming and Fishing Income

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:

• Form 1040-ES (PDF), Estimated Tax for Individuals

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:

• Form 1040-ES (PDF), Estimated Tax for Individuals

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:

• Tax Topic 158, Ensuring proper credit of payments
• Instructions for Form 1040-ES

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:

• Publication 505, Tax Withholding and Estimated Tax

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:

• Publication 505, Tax Withholding and Estimated Tax

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:

• Publication 505, Tax Withholding and Estimated Tax

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:

• Form W-4V (PDF), Voluntary Withholding Request
• Tax Topic 418, Unemployment compensation

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:

• Publication 575, Pension and Annuity Income
• Form 1040-ES (PDF), Estimated Tax for Individuals
• Form 4972 (PDF), Tax on Lump-Sum Distributions
• Tax Topic 412, Lump-sum distributions

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 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:

• Publication 505, Tax Withholding and Estimated Tax

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

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:

• Publication 505, Tax Withholding and Estimated Tax

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:

• Publication 505, Tax Withholding and Estimated Tax
• Tax Topic 306, Penalty for underpayment of estimated tax
• Tax Topic 355, Estimated tax
• Tax Topic 753, Form W-4
• Form W-4 (PDF), Employee's Withholding Allowance Certificate

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