2. Estimated Tax for 2008
What's New for 2008
This section summarizes important changes that could affect your estimated tax payments for 2008.
Earned income credit (EIC). You may be able to take the EIC if:
Two or more children lived with you and you earned less than $38,646 ($41,646 if married filing jointly),
One child lived with you and you earned less than $33,995 ($36,995 if married filing jointly), or
No children lived with you and you earned less than $12,880 ($15,880 if married filing jointly).
The maximum investment income you can have and still get the credit has increased to $2,950. For more information, see Publication 596, Earned Income Credit (EIC).
Retirement savings plans. . The following paragraphs highlight changes that affect individual retirement arrangements (IRAs) and pension plans. For more information, see Publication 590, Individual Retirement Arrangements (IRAs). Traditional IRA deduction limits increased. You and your spouse, if filing jointly, each may be able to deduct up to $5,000 ($6,000 if age 50 or older at the end of the year). You may be able to take an IRA deduction if you were covered by a retirement plan at work and your 2008 modified adjusted gross income (AGI) is less than $63,000 ($105,000 if married filing jointly or a qualifying widow(er)). Retirement savings contributions credit (saver's credit). For 2008, the income limits have increased and you may be able to claim this credit if your modified AGI is not more than $26,500 ($53,000 if married filing jointly, $39,750 if head of household).
Personal exemption and itemized deduction phaseouts reduced. The amount by which these deductions are reduced in 2008 will be one-half of the reduction that applied in 2007.
Standard mileage rates. Beginning in 2008, the standard mileage rate for the cost of operating your car is:
50½ cents a mile for all business miles driven,
19 cents a mile for the use of your car for medical reasons,
19 cents a mile for the use of your car for a deductible move, and
14 cents a mile for the use of your car for charitable reasons.
Tax on child's investment income. . Form 8615 will be required to figure the tax for the following children with investment income of more than $1,800.
Children under age 18 at the end of 2008.
The following children if their earned income is not more than half their support.
Children age 18 at the end of 2008.
Children over age 18 and under age 24 at the end of 2008 who are full-time students.
The election to report a child's investment income on a parent's return and the special rule for when a child must file Form 6251, Alternative Minimum Tax—Individuals, also will apply to the children listed above.
Forgiveness of mortgage debt. . You may be able to exclude from income part or all of the mortgage debt forgiven on your principal residence. This applies for debt forgiven in 2007 through 2009. See Publication 553, Highlights of 2007 Tax Changes, for more details.
Volunteer firefighters and emergency medical responders. . Certain qualified payments and other State and local tax benefits are not included in taxable income. For more information, see Publication 553.
Special rule for sales of principal residences by surviving spouses. . A surviving spouse who sells his or her principal residence within 2 years after the spouse's date of death may be allowed to exclude up to $500,000 of qualified gain instead of $250,000. See Publication 553 for more information.
Capital gain tax rate reduced. . The 5% capital gain tax rate is reduced to zero.
Extended tax benefits. . The deduction for qualified mortgage insurance premiums was extended through 2010.
Expiring tax benefits. Legislation during 2008 may extend one or more of the following benefits. For the latest information, see Highlights of Recent Tax Changes, at www.irs.gov. The following tax benefits are scheduled to expire at the end of 2007 and will not apply for 2008.
Deduction for educator expenses in figuring AGI.
Tuition and fees deduction.
The exclusion from income of qualified charitable distributions.
Credit for nonbusiness energy property.
District of Columbia first-time homebuyer credit (for homes purchased after 2007).
Deduction for state and local general sales tax.
The election to include nontaxable combat pay in earned income for the EIC.
Penalty-free withdrawals from retirement plans for individuals called to active duty.
Tax credit for research and experimentation expenses.
Indian employment tax credit.
Credit for energy efficient appliances.
Introduction
Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. 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.
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. 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. If you do not pay enough by the due date of each payment period (see When To Pay Estimated Tax on page 23), you may be charged a penalty even if you are due a refund when you file your tax return. For information on when the penalty applies, see chapter 4.
It would be helpful for you to keep a copy of your 2007 tax return and an estimate of your 2008 income nearby while reading this chapter.Topics - This chapter discusses:
Who must pay estimated tax,
How to figure estimated tax (including illustrated examples),
When to pay estimated tax,
How to figure each payment, and
How to pay estimated tax.
Useful Items - You may want to see:
Publication
Form (and Instructions)
1040-ES
Estimated Tax for Individuals
See chapter 5 for information about how to get this publication and form.
Worksheets
You may need to use several of the blank worksheets included in this chapter. See Table 2-2 on page 32 to locate what you need.
Who Does Not Have To Pay Estimated Tax
If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings. To do this, file a new Form W-4 with your employer. See chapter 1.
Estimated tax not required
You do not have to pay estimated tax for 2008 if you meet all three of the following conditions.
You had no tax liability for 2007.
You were a U.S. citizen or resident alien for the whole year.
Your 2007 tax year covered a 12-month period.
Who Must Pay Estimated Tax
If you owed additional tax for 2007, you may have to pay estimated tax for 2008.
General Rule
You must pay estimated tax for 2008 if both of the following apply.
You expect to owe at least $1,000 in tax for 2008, after subtracting your withholding and credits.
You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your 2008 tax return, or
100% of the tax shown on your 2007 tax return. Your 2007 tax return must cover all 12 months.
Note. These percentages may be different if you are a farmer, fisherman, or higher income taxpayer. See Special Rules on the next page.
You may find Figure 2-A below helpful in determining if you must pay estimated tax.
If all your income will be subject to income tax withholding, you probably do not need to pay estimated tax.Example �
To figure whether she should pay estimated tax for 2008, Jane, who files as head of household, uses Figure 2-A and the following information.
| Expected AGI for 2008 | $79,800 |
| AGI for 2007 | $73,700 |
| Tax shown on 2007 return | $ 9,944 |
| Tax expected to be shown on 2008 return | $11,263 |
| Tax expected to be withheld in 2008 | $10,200 |
Jane's answer to the chart's first question is YES; she expects to owe at least $1,000 for 2008 after subtracting her withholding from her expected tax ($11,263 - $10,200 = $1,063). Her answer to the chart's second question is also YES; she expects her income tax withholding ($10,200) to be at least 90% of the tax to be shown on her 2008 return ($11,263 × 90% = $10,137). Jane does not need to pay estimated tax.
Example �
The facts are the same as in Example 1, except that Jane expects only $8,500 tax to be withheld in 2008. Because that is less than $10,137, her answer to the chart's second question is NO.
Jane's answer to the chart's third question is also NO; she does not expect her income tax withholding ($8,500) to be at least 100% of the tax shown on her 2007 return ($9,944). Jane must pay estimated tax for 2008.
Example �
The facts are the same as in Example 2, except that the tax shown on Jane's 2007 return was $8,000. Because she expects to have more than $8,000 withheld in 2008 ($8,500), her answer to the chart's third question is YES. Jane does not need to pay estimated tax for 2008.
Figure 2-A: Do You Have To Pay Estimated Tax?
Married Taxpayers
If you qualify to make joint estimated tax payments, apply the rules discussed here to your joint estimated income.
You and your spouse can qualify to make joint estimated tax payments even if you are not living together.
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). See Choosing Resident Alien Status in Publication 519.
If you do not qualify to make joint estimated tax payments, apply these rules to your separate estimated income.
Making joint or separate estimated tax payments will not affect your choice of filing a joint tax return or separate returns for 2008.
2007 separate returns and 2008 joint return
If you plan to file a joint return with your spouse for 2008, but you filed separate returns for 2007, your 2007 tax is the total of the tax shown on your separate returns. You filed a separate return if you filed as single, head of household, or married filing separately.
2007 joint return and 2008 separate returns
If you plan to file a separate return for 2008, but you filed a joint return for 2007, your 2007 tax is your share of the tax on the joint return. You file a separate return if you file as single, head of household, or married filing separately. To figure your share of the tax on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2007 using the same filing status as for 2008. Then multiply the tax on the joint return by the following fraction.
| 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 �
Joe and Heather filed a joint return for 2007 showing taxable income of $48,500 and a tax of $6,496. Of the $48,500 taxable income, $40,100 was Joe's and the rest was Heather's. For 2008, they plan to file married filing separately. Joe figures his share of the tax on the 2007 joint return as follows:
| Tax on $40,100 based on separate return | $6,455 | ||
| Tax on $8,400 based on separate return | 873 | ||
| Total | $7,328 | ||
| Joe's percentage of total ($6,455 ÷ $7,328) | 88% | ||
| Joe's share of tax on joint return ($6,496 × 88%) | $5,716 |
Special Rules
There are special rules for farmers, fishermen, and certain higher income taxpayers.
Farmers and Fishermen
If at least two-thirds of your gross income for 2007 or 2008 is from farming or fishing, substitute 66⅔% for 90% in (2a) under General Rule on the previous page.
Gross income
Your gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. To determine whether two-thirds of your gross income for 2007 was from farming or fishing, use as your gross income the total of the income (not loss) amounts.
Joint returns
On a joint return, you must add your spouse's gross income to your gross income to determine if at least two-thirds of your total gross income is from farming or fishing.
Gross income from farming
This is income from cultivating the soil or raising agricultural commodities. It includes the following amounts.
Income from operating a stock, dairy, poultry, bee, fruit, or truck farm.
Income from a plantation, ranch, nursery, range, orchard, or oyster bed.
Crop shares for the use of your land.
Gains from sales of draft, breeding, dairy, or sporting livestock.
Schedule F (Form 1040), Profit or Loss From Farming, line 11;
Form 4835, Farm Rental Income and Expenses, line 7;
Your share of the gross income from farming of a partnership, S corporation, estate or trust, from Schedule K-1 (Form 1065), Box 14, code B; Schedule K-1 (Form 1120S), Box 17, code T; or Schedule K-1 (Form 1041), Box 14, code F; and
Your gains from sales of draft, breeding, dairy, or sporting livestock shown on Form 4797, Sales of Business Property.
Gross income from fishing
This is income from catching, taking, harvesting, cultivating, or farming any kind of fish, shellfish (for example, clams and mussels), crustaceans (for example, lobsters, crabs, and shrimp), sponges, seaweeds, or other aquatic forms of animal and vegetable life. Gross income from fishing includes the following amounts.
Schedule C (Form 1040), Profit or Loss From Business, line 7.
Income for services as an officer or crew member of a vessel while the vessel is engaged in fishing.
Your share of the gross income from fishing of a partnership, S corporation, estate or trust, from Schedule K-1 (Form 1065), Box 14, code B; Schedule K-1 (Form 1120S), Box 17, code T; or Schedule K-1 (Form 1041), Box 14, code F.
Income for services normally performed in connection with fishing.
Shore service as an officer or crew member of a vessel engaged in fishing, and
Services that are necessary for the immediate preservation of the catch, such as cleaning, icing, and packing the catch.
Higher Income Taxpayers
If your AGI for 2007 was more than $150,000 ($75,000 if your filing status for 2008 is married filing a separate return), substitute 110% for 100% in (2b) under General Rule on page 19.
For 2007, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4.
Note.
This rule does not apply to farmers and fishermen.
Aliens
Resident and nonresident aliens also may have to pay estimated tax. Resident aliens should follow the rules in this publication, unless noted otherwise. Nonresident aliens should get Form 1040-ES (NR), U.S. Estimated Tax for Nonresident Alien Individuals.
You are an alien if you are not a citizen or national of the United States. You are a resident alien if you either have a green card or meet the substantial presence test.
See Publication 519 for more information about Form 1040-ES (NR) and withholding (chapter 8) and the substantial presence test (chapter 1).
Estates and Trusts
Estates and trusts also must pay estimated tax. However, estates (and certain grantor trusts that receive the residue of the decedent's estate under the decedent's will) are exempt from paying estimated tax for the first two years after the decedent's death.
Estates and trusts must use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.
How To Figure Estimated Tax
To figure your estimated tax, you must figure your expected AGI, taxable income, taxes, deductions, and credits for the year.
When figuring your 2008 estimated tax, it may be helpful to use your income, deductions, and credits for 2007 as a starting point. Use your 2007 federal tax return as a guide. You can use Form 1040-ES to figure your estimated tax. Nonresident aliens use Form 1040-ES (NR) to figure estimated tax.
You must make adjustments both for changes in your own situation and for recent changes in the tax law. For 2008, there are several changes in the law. Some of these changes are discussed under What's New for 2008 at the beginning of this chapter. For information about these and other changes in the law, get Publication 553 or visit the IRS website at www.irs.gov.
The instructions for Form 1040-ES include a worksheet to help you figure your estimated tax. Keep the worksheet for your records.
2008 Estimated Tax Worksheet
Use the worksheet (Figure 2-B) above to help guide you through the information about completing the 2008 Estimated Tax Worksheet. You also will find a blank worksheet on page 33.
This image is too large to be displayed in the current screen. Please click the link to view the image.Fig. 2-B. 2008 Estimated Tax Worksheet
Expected AGI—Line 1
Your expected AGI for 2008 (line 1) is your expected total income minus your expected adjustments to income.
Total income
Include in your total income all the income you expect to receive during the year, even income that is subject to withholding. However, do not include income that is tax exempt. Total income includes all income and loss for 2008 that, if you had received it in 2007, would have been included on your 2007 tax return in the total on line 22 of Form 1040, line 15 of Form 1040A, or line 4 of Form 1040EZ. Social security and railroad retirement benefits. If you expect to receive social security or tier 1 railroad retirement benefits during 2008, use Worksheet 2-1 on page 34 to figure the amount of expected taxable benefits you should include on line 1.
Adjustments to income
Be sure to subtract from your expected total income all of the adjustments you expect to take on your 2008 tax return. If you are using your 2007 return as a guide and filed Form 1040, your adjustments for 2007 were on lines 23-35, plus any write-in adjustments on line 36. If you filed Form 1040A, your 2007 adjustments were on lines 16-19. Self-employed. If you expect to have income from self-employment, use Worksheet 2-2 on page 34 to figure your expected self-employment tax and your deduction for one-half of your self-employment tax. Include the amount from line 10 of Worksheet 2-2 in your expected adjustments to income. If you file a joint return and both you and your spouse have net earnings from self-employment, each of you must complete a separate worksheet.
Expected Taxable Income— Lines 2-5
Reduce your expected AGI for 2008 (line 1) by either your expected itemized deductions or your standard deduction and by your exemptions (lines 2 through 5).
Itemized deductions—line 2. If you expect to claim itemized deductions on your 2008 tax return, subtract the estimated amount from your expected AGI. Itemized deductions are the deductions that can be claimed on Schedule A of Form 1040. Phaseout of itemized deductions. For 2008, your total itemized deductions may be reduced if your AGI is more than $159,950 ($79,975 if married filing separately). If you expect your AGI to be more than that amount, use Worksheet 2-3 on page 35 to figure the amount to enter on line 2. Standard deduction—line 2. If you expect to claim the standard deduction on your 2008 tax return, subtract it from your expected AGI. Use the 2008 Standard Deduction Tables on page 43 to find your standard deduction.No standard deduction
The standard deduction for some individuals is zero. Your standard deduction will be zero if you:
File a separate return and your spouse itemizes deductions,
Are a dual-status alien, or
File a return for a period of less than 12 months because you change your accounting period.
| Single | $159,950 |
| Married filing jointly or qualifying widow(er) | $239,950 |
| Married filing separately | $119,975 |
| Head of household | $199,950 |
If you expect your AGI to be more than that amount, use Worksheet 2-4 on page 35 to figure the amount to enter on line 4.
Expected Taxes and Credits—Lines 6-13c
After you have figured your expected taxable income (line 5), follow the steps below to figure your expected taxes, credits, and total tax for 2008. Most people will have entries for only a few of these steps. However, you should check every step to be sure you do not overlook anything.
Step 1
Figure your expected income tax (line 6). Generally, you will use the 2008 Tax Rate Schedules, found on page 40 or in the instructions to Form 1040-ES, to figure your expected income tax. However, see below for situations where you must use a different method to compute your estimated tax. Tax on child's investment income. You must use a special method to figure tax on the income of the following children who have more than $1,800 of investment income.
Children under age 18 at the end of 2008.
The following children if their earned income is not more than half their support.
Children age 18 at the end of 2008.
Children over age 18 and under age 24 at the end of 2008 who are full-time students.
Tax on net capital gain
The regular income tax rates for individuals do not apply to a net capital gain. Instead, your net capital gain is taxed at a lower maximum rate. The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.
Tax on qualified dividends
The maximum tax rate for qualified dividends is 15% (generally, 0% for people whose other income is taxed at the 10% or 15% rate). Tax on capital gain and qualified dividends. If you expect to have a net capital gain or qualified dividends, use Worksheet 2-5 on page 36 to figure your tax. Tax if excluding foreign earned income or housing. If you expect to claim the foreign earned income exclusion or the housing exclusion on Form 2555 or Form 2555-EZ, use Worksheet 2-6 on page 37 to figure your estimated tax.
Step 2
Total your expected taxes (line 8). Include on line 8 the sum of:
Your tax on line 6;
Your expected alternative minimum tax (AMT) from Form 6251 (or included on Form 1040A, line 28) on line 7;
Your expected additional taxes from Form 8814, Parents' Election To Report Child's Interest and Dividends, and Form 4972, Tax on Lump-Sum Distributions (line 44, boxes a and b, of the 2007 Form 1040); and
Any recapture of education credits.
Step 3
Subtract your expected credits (line 9). If you are using your 2007 return as a guide and filed Form 1040, your total credits for 2007 were shown on line 56. If you filed Form 1040A, your total credits for 2007 were on line 34. If your credits on line 9 are more than your taxes on line 8, enter “-0-” on line 10 and go to Step 4.
Step 4
Add your expected self-employment tax (line 11). You already should have figured your self-employment tax (see Self-employed under Expected AGI—Line 1 on page 21).
Step 5
Add your expected other taxes (line 12). Other taxes include:
Taxes on early distributions from:
An IRA or other qualified plan,
An annuity, or
A modified endowment contract entered into after June 20, 1988;
Advance earned income credit payments;
Household employment taxes (before subtracting advance EIC payments made to your employee(s)) if:
You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income, or
You would be required to make estimated tax payments even if you did not include household employment taxes when figuring your estimated tax; and
Amounts written in on Form 1040, line 63. But, do not include tax on recapture of a federal mortgage subsidy, tax on golden parachute payments, excise tax on insider stock compensation from an expatriated corporation, or uncollected employee social security, Medicare, or RRTA tax on tips or group-term life insurance.
Step 6
Subtract your expected earned income credit, additional child tax credit, Form 4136 fuel tax credit, Form 8885 health coverage tax credit, and Form 8801 (line 27) refundable credit for prior year minimum tax (line 13b). These are shown on the 2007 Form 1040, lines 66a, 68, 70b, 70c, and 71. To figure your expected fuel tax credit, do not include fuel tax for the first three quarters of the year that you expect to have refunded to you. The earned income credit is shown on the 2007 Form 1040A, line 40a, and the additional child tax credit is shown on line 41. The result of steps 1 through 6 is your total estimated tax for 2008 (line 13c).
Required Annual Payment— Line 14c
On lines 14a through 14c, figure the total amount you must pay for 2008, through withholding and estimated tax payments, to avoid paying a penalty.
General rule
The total amount you must pay is the smaller of:
90% of your total expected tax for 2008, or
100% of the total tax shown on your 2007 return. Your 2007 tax return must cover all 12 months.
Special rules
There are special rules for certain higher income taxpayers and for farmers and fishermen.
Higher income taxpayers
If your AGI for 2007 was more than $150,000 ($75,000 if your filing status for 2008 is married filing separately), substitute 110% for 100% in (2) above. This rule does not apply to farmers and fishermen.
For 2007, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4.
Example
Jeremy Martin's total tax on his 2007 return was $42,581, and his expected tax for 2008 is $71,253. His 2007 AGI was $180,000. Because Jeremy had more than $150,000 of AGI in 2007, he figures his required annual payment as follows. He determines that 90% of his expected tax for 2008 is $64,128 (.90 × $71,253). Next, he determines that 110% of the tax shown on his 2007 return is $46,839 (1.10 x $42,581). Finally, he determines that his required annual payment is $46,839, the smaller of the two. Farmers and fishermen. If at least two-thirds of your gross income for 2007 or 2008 is from farming or fishing, your required annual payment is the smaller of:
66⅔% (.6667) of your total tax for 2008, or
100% of the total tax shown on your 2007 return. (Your 2007 tax return must cover all 12 months.)
Total tax for 2007
Your 2007 total tax on Form 1040 is the amount on line 63 reduced by the total of the following.
The amounts on lines 59, 66a, 68, and 71.
The following amounts included on line 60.
Any tax on excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts.
Any tax on excess accumulations in qualified retirement plans from Form 5329.
The following amounts included on line 63.
Any recapture of a federal mortgage subsidy.
Any tax on golden parachute payments.
Excise tax on insider stock compensation from an expatriated corporation.
Any uncollected employee social security, Medicare, or railroad retirement tax on tips or group-term life insurance.
Any credit from Form 4136 or Form 8885 included on line 70.
Total Estimated Tax Payments Needed—Line 16a
Use lines 15 and 16a to figure the total estimated tax you must pay for 2008. Subtract your expected withholding from your required annual payment. You usually must pay this difference in four equal installments. (See When To Pay Estimated Tax on this page and How To Figure Each Payment on page 24.)
You do not have to pay estimated tax if:
Line 14c minus line 15 is zero or less, or
Line 13c minus line 15 is less than $1,000.
Withholding
Your expected withholding for 2008 (line 15) includes the income tax you expect to be withheld from all sources (wages, pensions and annuities, etc.). It also includes excess social security and railroad retirement tax you expect to be withheld from your wages. For this purpose, you will have excess social security or tier 1 railroad retirement tax withholding for 2008 only if your wages from two or more employers are more than $102,000. (See Excess Social Security or Railroad Retirement Tax Withholding in chapter 3.)
When To Pay Estimated Tax
For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return. The payment periods and due dates for estimated tax payments are shown next.
| For the period: | Due date: | |
| Jan. 1 1 - March 31 | April 15 | |
| April 1 - May 31 | June 15 | |
| June 1 - August 31 | September 15 | |
| Sept. 1 - Dec. 31 | January 15 next year 2 | |
| 1If your tax year does not begin on January 1, see Fiscal year taxpayers below. |
| 2See January payment below. |
Saturday, Sunday, holiday rule
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 business day. For example, a payment due on Sunday, June 15, 2008, will be on time if you make it by Monday, June 16, 2008.
January payment
If you file your 2008 Form 1040 or Form 1040A by February 2, 2009, and pay the rest of the tax you owe, you do not need to make the payment due on January 15, 2009.
Example �
Janet Adams does not pay any estimated tax for 2008. She files her 2008 income tax return and pays the balance due shown on her return on January 26, 2009.
Janet's estimated tax for the fourth payment period is considered to have been paid on time. However, she may owe a penalty for not making the first three estimated tax payments. Any penalty for not making those payments will be figured up to January 26, 2009.
Fiscal year taxpayers
If your tax year does not start on January 1, your payment due dates are:
The 15th day of the 4th month of your fiscal year,
The 15th day of the 6th month of your fiscal year,
The 15th day of the 9th month of your fiscal year, and
The 15th day of the 1st month after the end of your fiscal year.
When To Start
You do not have to make estimated tax payments until you have income on which you will owe the tax. 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. You can pay all your estimated tax at that time, or you can pay it in installments. If you choose to pay in installments, make your first payment by the due date for the first payment period. Make your remaining installment payments by the due dates for the later periods.
No income subject to estimated tax during first period
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. 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. Table 2-1 below shows the dates for making installment payments.
How much to pay to avoid penalty
To determine how much you should pay by each payment due date, see How To Figure Each Payment beginning on this page.
Table 2-1. Due Dates for Estimated Tax Installment Payments
| 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 15 |
| Sept. 15 | ||
| Jan. 15 next year | ||
| April 1-May 31 | June 15 | Sept. 15 |
| Jan. 15 next year | ||
| June 1-Aug. 31 | Sept. 15 | Jan. 15 next year |
| After Aug. 31 | Jan. 15 next year | (None) |
| *See January payment and Saturday, Sunday, holiday rule on page 23. | |
Farmers and Fishermen
If at least two-thirds of your gross income for 2007 or 2008 is from farming or fishing, you have only one payment due date for your 2008 estimated tax, January 15, 2009. The due dates for the first three payment periods, discussed under When To Pay Estimated Tax on page 23, do not apply to you.
If you file your 2008 Form 1040 by March 2, 2009, and pay all the tax you owe, you do not need to make an estimated tax payment.
Fiscal year farmers and fishermen
If you are a farmer or fisherman, but your tax year does not start on January 1, you can either:
Pay all your estimated tax by the 15th day after the end of your tax year, or
File your return and pay all the tax you owe by the 1st day of the 3rd month after the end of your tax year.
How To Figure Each Payment
After you have figured your total estimated tax, figure how much you must pay by the due date of each payment period. You should pay enough by each due date to avoid a penalty for that period. If you do not pay enough during any payment period, you may be charged a penalty even if you are due a refund when you file your tax return. The penalty is discussed in chapter 4.
Regular Installment Method
If your first estimated tax payment is due April 15, 2008, you can figure your required payment for each period by dividing your annual estimated tax due (line 16a of the 2008 Estimated Tax Worksheet) by 4. Enter this amount on line 17. However, use this method only if your income is basically the same throughout the year.
Household employers
Reduce your required payment for each period by the amount of advance EIC payments you paid during the period.
Change in estimated tax
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. 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.
If you do not receive your income evenly throughout the year, your required estimated tax payments may not be the same for each period. See Annualized Income Installment Method below.
Amended estimated tax. If you refigure your estimated tax during the year, or if your first estimated tax payment is due after April 15, 2008, figure your required payment for each remaining payment period using Worksheet 2-7 on page 37.Example �
Early in 2008, Mira Roberts figures that her estimated tax due is $1,800. She makes estimated tax payments on April 15 and June 15 of $450 each ($1,800 ÷ 4).
On July 10, she sells investment property at a gain. Her refigured estimated tax is $4,100. Her required estimated tax payment for the third payment period is $2,175, as shown in her filled-in Worksheet 2-7 on this page.
If Mira's estimated tax does not change again, her required estimated tax payment for the fourth payment period will be $1,025.
Worksheet 2-7. Amended Estimated Tax Worksheet—Illustrated
| 1. | Amended total estimated tax due | 1. | $4,100 | |||
| 2. | Multiply line 1 by: | |||||
| 50% (.50) if next payment is due June 15, 2008 | ||||||
| 75% (.75) if next payment is due September 15, 2008 | ||||||
| 100% (1.00) if next payment is due January 15, 2009 | 2. | 3,075 | ||||
| 3. | Estimated tax payments for all previous periods | 3. | 900 | |||
| 4. | Next required payment: Subtract line 3 from line 2 and enter the result (but not less than zero) here and on your payment voucher for your next required payment | 4. | $2,175 | |||
| Note.If the payment on line 4 is due January 15, 2009, stop here. Otherwise, go to line 5. | ||||||
| 5. | Add lines 3 and 4 | 5. | 3,075 | |||
| 6. | Subtract line 5 from line 1 and enter the result (but not less than zero) | 6. | 1,025 | |||
| 7. | Each following required payment: If the payment on line 4 is due June 15, 2008, enter one-half of the amount on line 6 here and on the payment vouchers for your payments due September 15, 2008, and January 15, 2009. If the amount on line 4 is due September 15, 2008, enter the full amount on line 6 here and on the payment voucher for your payment due January 15, 2009 | 7. | $1,025 | |||
Underpayment penalty
If your estimated tax payment for a previous period is less than one-fourth of your amended estimated tax, you may be charged a penalty for underpayment of estimated tax for that period when you file your tax return. See chapter 4 for more information.
Annualized Income Installment Method
If you do not receive your income evenly throughout the year (for example, your income from a repair shop you operate is much larger in the summer than it is during the rest of the year), your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method.
The annualized income installment method 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 from the beginning of the tax year through the end of the period. To see whether you can pay less for any period, complete the 2008 Annualized Estimated Tax Worksheet (Worksheet 2-8) beginning on page 38.
You first must complete the 2008 Estimated Tax Worksheet through line 16b. (See page 33 for blank worksheet.)Use the result you figure on line 28 of the Annualized Estimated Tax Worksheet to make your estimated tax payments and complete your payment vouchers.
See Example 2, beginning on page 28, to see how the worksheet is completed.
Note.
If you use the annualized income installment method to figure your estimated tax payments, you must file Form 2210 with your 2008 tax return. See Annualized Income Installment Method (Schedule AI) in chapter 4 for more information.
Instructions for the 2008 Annualized Estimated Tax Worksheet (Worksheet 2-8)
Use Figure 2-C on page 26 to help you follow these instructions. Another worksheet is available for your use on pages 38 and 39.The purpose of this worksheet is to determine your estimated tax liability as your income accumulates throughout the year, rather than dividing your entire year's estimated tax liability by four as if your income was earned equally throughout the year. The top of the worksheet (see page 26) shows the dates for each payment period. The periods build; that is, each period includes all previous periods. After the end of each payment period, complete the corresponding worksheet column to figure the payment due for that period.
This image is too large to be displayed in the current screen. Please click the link to view the image.Figure 2-C. Worksheet for Annualized Income Installment Method.
Line 1
Enter your AGI for the period. This is your gross income, including your share of partnership or S corporation income or loss, for the period, minus your adjustments to income for that period. (See Expected AGI—Line 1 on page 21.) Self-employment income. If you had self-employment income, first complete Section B of this worksheet. Use the amounts on line 39 when figuring the AGI to enter in each column of Section A, line 1.
Line 4
Be sure to consider all deduction limits figured on Schedule A, such as reducing your medical expenses by 7.5% of your AGI, or reducing certain miscellaneous deductions by 2% of your AGI. Figure your deduction limits using your expected AGI in the corresponding column of line 1 (2008 Annualized Estimated Tax Worksheet).
Line 6
Multiply line 4 by line 5 and enter the result on line 6, unless line 3 is more than $159,950 ($79,975 if married filing separately). In that case, use Worksheet 2-9 on page 39 to figure the amount to enter on line 6. Complete this worksheet for each period, as necessary.
Line 7
If you will not itemize your deductions, see the 2008 Standard Deduction Tables on page 43. Find your standard deduction in the appropriate table.
Line 10
Multiply $3,500 by your total expected exemptions, unless line 3 is more than the amount shown below for your filing status.
| Single | $159,950 | ||
| Married filing jointly or qualifying widow(er) | $239,950 | ||
| Married filing separately | $119,975 | ||
| Head of household | $199,950 |
Line 12
Generally, you will use the 2008 Tax Rate Schedules on page 40 or in the instructions to Form 1040-ES to figure your annualized income tax. However, see below for situations where you must use a different method to compute your estimated tax. Tax on child's investment income. You must use a special method to figure tax on the income of the following children who have more than $1,800 investment income.
Children under age 18 at the end of 2008.
The following children if their earned income is not more than half their support.
Children age 18 at the end of 2008.
Children over age 18 and under age 24 at the end of 2008 who are full-time students.
Tax on net capital gain
The regular income tax rates for individuals do not apply to a net capital gain. Instead, your net capital gain is taxed at a lower maximum rate. The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.
Tax on qualified dividends
Generally, the maximum tax rate for qualified dividends is 15% (0% for people whose other income is taxed at the 10% or 15% rate). Tax on capital gain and qualified dividends. If the amount on line 1 includes capital gains or qualified dividends, use Worksheet 2-11 on page 41 to figure the amount to enter on line 12. Tax if excluding foreign earned income or housing. If you expect to claim the foreign earned income exclusion or the housing exclusion on Form 2555 or Form 2555-EZ, use Worksheet 2-12 on page 42 to figure the amount to enter on line 12.
Line 13
Enter your self-employment tax for the period from Section B, line 37.
Line 14
Include all the taxes you expect to owe (other than income tax and self-employment tax) because of events that occurred during the period. These taxes include:
Tax on early distributions from qualified plans, including IRAs and other tax favored accounts,
Advance earned income credit payments,
Tax from Form 4972,
Tax from Form 8814,
Tax from recapture of an education credit,
Household employment taxes that are reported on your income tax return, and
Amounts written in on Form 1040, line 63 (but see Exceptions below).
Line 16
Include all the credits (other than withholding credits) you can claim because of events that occurred during the period. If you are using your 2007 return as a guide and filed Form 1040, your 2007 credits included the total credits on line 56, and the credits shown on lines 66a, 68, 70 boxes b and c, and 71. If you filed Form 1040A, your 2007 credits included the credits on lines 34, 40a, and 41.
Line 25
If line 24 is smaller than line 21 and you are not certain of the estimate of your 2008 tax, you can avoid a penalty by entering the amount from line 21 on line 25.
Line 27
For each period, include estimated tax payments made and any excess social security and railroad retirement tax. Also include estimated federal income tax withholding. One-fourth of your estimated withholding is considered withheld on the due date of each payment period. To figure the amount to include on line 27 for each period, multiply your total expected withholding for 2008 by:
25% (.25) for the first period,
50% (.50) for the second period,
75% (.75) for the third period, and
100% (1.00) for the fourth period.
Section B
If you had income from self-employment during any period, complete the worksheet column for that period to figure your annualized self-employment tax before you complete the worksheet column for that period in Section A.
Nonresident aliens
If you will file Form 1040NR and you do not receive wages as an employee subject to U.S. income tax withholding, the instructions for the worksheet are modified as follows.
Skip column (a).
On line 1, enter your income for the period that is effectively connected with a U.S. trade or business.
On line 17, increase your entry by the amount determined by multiplying your income for the period that is not effectively connected with a U.S. trade or business by the following.
72% for column (b).
45% for column (c).
30% for column (d).
However, if you can use a treaty rate lower than 30%, use the percentages determined by multiplying your treaty rate by 2.4, 1.5, and 1, respectively.
On line 22, enter one-half of the amount from line 16c of the Form 1040-ES (NR) 2008 Estimated Tax Worksheet in column (b), and one-fourth in columns (c) and (d).
On lines 20 and 23, skip column (b).
On line 27, if you do not use the actual withholding method, include one-half of your total expected withholding in column (b) and one-fourth in columns (c) and (d).
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.
You also do not have to pay estimated tax if you will pay enough through withholding to keep the amount you will owe with your return under $1,000.
How To Pay Estimated Tax
There are five ways to pay estimated tax.
Credit an overpayment on your 2007 return to your 2008 estimated tax.
Send in your payment (check or money order) with a payment voucher from Form 1040-ES.
Pay electronically using the Electronic Federal Tax Payment System (EFTPS).
Pay by electronic funds withdrawal if you are filing Form 1040 or Form 1040A electronically.
Pay by credit card using a pay-by-phone system or the Internet.
Credit an Overpayment
If you show an overpayment of tax after completing your Form 1040 or Form 1040A for 2007, you can apply part or all of it to your estimated tax for 2008. On line 75 of Form 1040, or line 45 of Form 1040A, enter the amount you want credited to your estimated tax rather than refunded. The amount you have credited should be taken into account when figuring your estimated tax payments.
If you are a beneficiary of an estate or trust, and the trustee elects to credit 2008 trust payments of estimated tax to you, you can treat the amount credited as paid by you on January 15, 2009.
The credit will be applied to your payments in the order necessary to avoid the penalty for underpayment of estimated tax. You cannot have any of that amount refunded to you until the close of that tax year. You also cannot use that overpayment in any other way.
Example �
When Kathleen finished filling out her 2007 tax return, she saw that she had overpaid her taxes by $750. Kathleen knew she would owe additional tax in 2008. She credited $600 of the overpayment to her 2008 estimated tax and had the remaining $150 refunded to her.
In September, she amended her 2007 return by filing Form 1040X, Amended U.S. Individual Income Tax Return. It turned out that she owed $250 more in tax than she had thought. This reduced her 2007 overpayment from $750 to $500. Because the $750 had already been applied to her 2008 estimated tax or refunded to her, the IRS billed her for the additional $250 she owed, plus penalties and interest. Kathleen could not use any of the $600 she had credited to her 2008 estimated tax to pay this bill.
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. If you made estimated tax payments last year, you should receive a copy of the 2008 Form 1040-ES in the mail. It will have payment vouchers preprinted with your name, address, and social security number. Using the preprinted vouchers will speed processing, reduce the chance of error, and help save processing costs.
If you did not pay estimated tax last year, you will have to get a copy of Form 1040-ES from the IRS (see chapter 5). Follow the instructions in the package to make sure you use the vouchers correctly.
Use the window envelopes that came with your Form 1040-ES package. 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.
Do not use the address shown in the Form 1040 or Form 1040A instructions.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.
Change of address
You must notify the IRS if you are making estimated tax payments and you changed your address during the year. Send a clear and concise written statement to the Internal Revenue Service Center where you filed your last return and provide all of the following information.
Your full name (and your spouse's full name).
Your signature (and spouse's signature).
Your old address (and spouse's old address if different).
Your new address.
Your social security number (and spouse's social security number).
Note.
If you have preprinted payment vouchers, continue to use them until the IRS sends you new ones. However, do not correct the address on the old voucher.
Pay by Electronic Federal Tax Payment System (EFTPS)
EFTPS is a free tax payment system designed with all taxpayers in mind. Online or by phone, you input your tax payment information electronically and you are done. EFTPS offers you convenience. Through EFTPS, you can schedule one-time or recurring payments for withdrawal from your checking or savings account up to 365 days in advance. You also can modify or cancel payments up to 2 business days before the scheduled withdrawal date. To use EFTPS, you must enroll. Enroll online at www.eftps.gov or call 1-800-555-4477 (for business accounts) or 1-800-316-6541 (for individual accounts) to receive an enrollment form and instructions by mail. TTY/TDD help is available by calling 1-800-733-4829. Call 1-800-244-4829 for Spanish.
Pay by Electronic Funds Withdrawal (EFW)
If you electronically file your 2007 tax return, you can make up to four (4) 2008 estimated tax payments by EFW. This is a free option. The payments can be withdrawn from either a checking or savings account. At the same time you file your return, you may schedule estimated tax payments for any or all of the following dates: April 15, 2008, June 16, 2008, September 15, 2008, and January 15, 2009.
Check with your tax return preparer or tax preparation software for details. Your scheduled payments will be acknowledged when you file your tax return.
Payments scheduled through EFW can be cancelled up to 8 p.m. Eastern time, 2 business days before the scheduled payment date, by contacting the U.S. Treasury Financial Agent at 1-888-353-4537.
Pay by Credit Card
You can use your American Express® Card, Discover® Card, MasterCard® card, or Visa® card to make estimated tax payments. Call toll-free or visit the website of either service provider listed below and follow the instructions. A convenience fee will be charged by the service provider based on the amount you are paying. Fees may vary between providers. You will be told what the fee is during the transaction and you will have the option to either continue or cancel the transaction. You also can find out what the fee will be by calling the provider's toll-free automated customer service number or visiting the provider's website shown below.
Link2Gov Corporation
1-888-PAY-1040 SM (1-888-729-1040)
1-888-658-5465 (Customer Service)
www.PAY1040.com
Official Payments Corporation
1-800-2PAY-TAX SM (1-800-272-9829)
1-877-754-4413 (Customer Service)
www.officialpayments.com
Illustrated Examples
The following examples show how to figure estimated tax payments under the regular installment method and under the annualized income installment method.
Example 1—Regular Installment Method
Early in 2008, Anne and Larry Jones figure their estimated tax payments for the year. They expect to receive the following income during 2008.
| Larry's salary | $35,900 |
| Unemployment compensation | 600 |
| Anne's net profit from self-employment | 40,100 |
| Net rental income | 2,784 |
| Interest income | 6,205 |
| Total | $85,589 |
They also use the following expected items to figure their estimated tax.
| Adjustment to income for IRA contributions | $ 1,000 |
| Itemized deductions | 11,525 |
| Deduction for exemptions ($3,500 × 2) | 7,000 |
| 2007 total tax | 14,496 |
| Withholding | 3,384 |
The Joneses plan to file a joint return. They use the 2008 Estimated Tax Worksheet included in Form 1040-ES to figure their estimated tax payments. See their filled-in worksheet (Figure 2-D) on page 30.
Expected AGI
Anne can claim an income tax deduction for one-half of her self-employment tax as a business expense. So before the Joneses figure their expected AGI, they figure Anne's expected self-employment tax. See their filled-in Worksheet 2-2 on this page.
Worksheet 2-2. Expected Self-Employment Tax—Illustrated (Anne Jones)
| 1. | Enter your expected income and profits subject to self-employment tax* | 1. | $40,100 | ||
| 2. | Multiply line 1 by 92.35% (.9235) | 2. | 37,032 | ||
| 3. | Multiply line 2 by 2.9% (.029) | 3. | 1,074 | ||
| 4. | Social security tax maximum income | 4. | $102,000 | ||
| 5. | Enter your expected wages (if subject to social security tax) | 5. | -0- | ||
| 6. | Subtract line 5 from line 4 | 6. | 102,000 | ||
| Note.If line 6 is zero or less, enter -0- on line 8 and skip to line 9. | |||||
| 7. | Enter the smaller of line 2 or line 6 | 7. | 37,032 | ||
| 8. | Multiply line 7 by 12.4% (.124) | 8. | 4,592 | ||
| 9. | Add line 3 and line 8. Enter the result here and on line 11 of your 2008 Estimated Tax Worksheet | 9. | $5,666 | ||
| 10. | Multiply line 9 by .50. This is your expected deduction for one-half of your self-employment tax. | 10. | $2,833 | ||
| *Your net profit from self-employment is found on Schedule C, line 31; Schedule C-EZ, line 3; Schedule F, line 36; Schedule K-1 (Form 1065), box 14, code A; and Schedule K-1 (Form 1065-B), box 9, code J1. |
Expected taxable income
The Joneses find their standard deduction, $10,900, in the 2008 Standard Deduction Tables on page 43. This is smaller than their expected itemized deductions, so they enter $11,525 on line 2 of the worksheet. They subtract the amount on line 2 from the amount on line 1 and enter the result, $70,231, on line 3. They enter their deduction for exemptions, $7,000, on line 4. After subtracting this amount, their expected taxable income on line 5 is $63,231.
Expected taxes and credits
The Joneses use the 2008 Tax Rate Schedule Y-1 on page 40 to figure their expected income tax, and enter $8,682 on line 6 of the worksheet. They do not expect to owe any other taxes that would be entered on lines 7 or 12, or have any credits that would be entered on lines 9 or 13b, so they leave those lines blank. The Joneses' total expected tax on line 13c, after adding Anne's self-employment tax, is $14,348.
Estimated tax
The Joneses multiply their total expected tax by 90% and enter $12,913 on line 14a of the worksheet. They enter their 2007 tax on line 14b. Their required annual payment on line 14c is the smaller amount, $12,913. They enter Larry's expected withholding, $3,384, on line 15 and subtract it from their required annual payment. Their estimated tax on line 16a is $9,529. They are required to pay estimated tax because their estimated withholding (line 15) is:
Less than their “required annual payment to avoid a penalty” (line 14c), and
Not within $1,000 of their “total 2008 estimated tax” (line 13c).
Required estimated tax payment
The Joneses must pay their first estimated tax payment by April 15, 2008. They enter one-fourth of their estimated tax (line 16a), $2,382, on line 17 of the worksheet and on their Form 1040-ES payment voucher that shows “Due April 15, 2008.” They mail the voucher with their payment to the address shown for their area in the Form 1040-ES instructions and record the payment on the Record of Estimated Tax Payments in the instructions. If their estimated tax does not change during the year, the Joneses also will pay $2,382 estimated tax by June 16 and September 15, 2008, and January 15, 2009.
Example 2—Annualized Income Installment Method
The facts are the same as in Example 1—Regular Installment Method, except that the Joneses do not expect to receive their income evenly throughout the year. Anne expects to receive the largest portion of her self-employment income during the last few months of the year, and the Joneses' rental income is from a vacation home rented only in the summer months.
After completing their 2008 Estimated Tax Worksheet, the Joneses decide to use the annualized income installment method to see if they can pay less than $2,382 estimated tax for one or more payment periods. They complete the 2008 Annualized Estimated Tax Worksheet (Worksheet 2-8) in this chapter. See their filled-in worksheet (Figure 2-E) on page 31.
First Period
On April 1, 2008, the Joneses complete the first column of the worksheet for the period January 1 through March 31. They had the following income for the period.
| Larry's salary | $8,975 |
| Unemployment compensation | 600 |
| Anne's net profit from self-employment | 3,000 |
| Net rental income | -0- |
| Interest income | 990 |
| Total | $13,565 |
They also take into account the following items for the period.
| Adjustment to income for IRA contributions | $ 150 |
| Itemized deductions | 1,300 |
| Withholding | 846 |
Annualized AGI
Before the Joneses figure their AGI for the period, they first figure Anne's self-employment tax in Section B, and then her adjustment to income for self-employment tax. On line 29 of Section B, they enter $2,771, which is Anne's net profit from self-employment for the period ($3,000 x .9235). The prorated social security tax limit is preprinted on line 30. She has no social security wages, so they enter zero on line 31, and $25,500 on line 32. Anne's annualized social security tax on line 34 is $1,374 ($2,771 × .496). Her annualized Medicare tax on line 36 is $321 ($2,771 × .116). Her total annualized self-employment tax on line 37 is $1,695. They enter that amount on line 13 of Section A. The Joneses figure their adjustment to income for Anne's self-employment tax on lines 38 and 39 (Section B). That amount is $212 ($1,695 ÷ 8). They subtract that amount and their $150 IRA contributions from their $13,565 total income and enter their AGI for the period, $13,203, on line 1 of Section A. They multiply that amount by 4 and enter their annualized AGI, $52,812, on line 3.
Annualized taxable income
The Joneses figure their annualized itemized deductions ($1,300 × 4) on lines 4 through 6 of Section A. Because the result is smaller than their standard deduction, they enter their $10,900 standard deduction on line 8. After subtracting that amount and their $7,000 deduction for exemptions, the Joneses' annualized taxable income on line 11 is $34,912.
Annualized taxes and credits
The Joneses use the 2008 Tax Rate Schedule Y-1 on page 40 to figure their annualized income tax, $4,434, which they enter on line 12 of Section A. They have no other taxes or credits for the period that would be entered on lines 14 or 16, so they leave those lines blank and enter $6,129 ($4,434 + $1,695) on lines 15 and 17. This is their annualized total tax.
Required estimated tax payment
The Joneses' annualized income installment on lines 19 and 21 of Section A is $1,379 ($6,129 × 22.5%). On lines 22 and 24 they enter $3,228, one-fourth of their $12,913 required annual payment (line 14c of their 2008 Estimated Tax Worksheet). Because $1,379 is smaller, they enter that amount on lines 25 and 26. Larry's total expected withholding for the year is $3,384. The Joneses can treat one-fourth of that amount, $846, as paid on April 15, or they can use Larry's actual withholding for the period. The Joneses enter $846 on line 27. On line 28, the Joneses' required estimated tax payment for the period under the annualized income installment method is $533 ($1,379 - $846). They will send in an estimated tax payment of $533 for the first period.
Second, Third, and Fourth Periods
After the end of each remaining payment period, the Joneses complete the column of the worksheet for that period (from the beginning of the year through the end of that payment period) in the same way they did for the first period. They had the following income for each period.
| Second Period | Third Period | Fourth Period | |
| Jan. 1- May 31 | Jan. 1- Aug. 31 | Jan. 1- Dec. 31 | |
| Larry's salary | $14,958 | $23,933 | $35,900 |
| Unemployment compensation | 600 | 600 | 600 |
| Anne's net profit from self-employment | 6,000 | 16,000 | 40,100 |
| Net rental income | 696 | 2,784 | 2,784 |
| Interest income | 1,575 | 3,250 | 6,205 |
| Total | $23,829 | $46,567 | $85,589 |
They also take into account the following items for each period.
| Second Period | Third Period | Fourth Period | |
| Jan. 1- May 31 | Jan. 1- Aug. 31 | Jan. 1- Dec. 31 | |
| Adjustment to income for IRA contributions | $ 250 | $ 400 | $1,000 |
| Itemized deductions | 2,970 | 7,025 | 11,525 |
For the second period, as for the first, the annualized income installment method allows the Joneses to pay less than their required payment under the regular installment method of figuring estimated tax payments. They make up the difference in the third and fourth periods when their income is higher.
Because the Joneses are using the annualized income installment method, they will file Form 2210 with their tax return for 2008.
This image is too large to be displayed in the current screen. Please click the link to view the image.Figure 2-D. Illustrated Example 1--Regular Installment Method (Anne and Larry Jones)
This image is too large to be displayed in the current screen. Please click the link to view the image.Figure 2-E. Illustrated Example 2--Annualized Income Installment Method (Anne and Larry Jones)
Worksheets for Chapter 2
Table 2-2. Where To Find Worksheets Use the following worksheets and tables to figure your correct estimated tax.
| IF you need... | THEN use... | ON page... |
| the 2008 Estimated Tax Worksheet (ES Worksheet) | 21, 33 | |
| to estimate your taxable social security and railroad retirement benefits—line 1 of ES Worksheet | Worksheet 2-1 | 34 |
| to estimate your self-employment (SE) tax and your deduction for one-half of your SE tax—lines 1 and 11 of ES Worksheet | Worksheet 2-2 | 34 |
| to reduce your itemized deductions because your estimated AGI is more than $159,950 ($79,975 if married filing separately)—line 2 of ES Worksheet | Worksheet 2-3 | 35 |
| to reduce your exemption amount because your estimated AGI is more than $119,975 —line 4 of ES Worksheet | Worksheet 2-4 | 35 |
| to estimate your income tax if you have net capital gains or qualified dividends—line 6 of ES Worksheet | Worksheet 2-5 | 36 |
| to estimate your income tax if you expect to claim a foreign earned income exclusion or housing exclusion on Form 2555 or Form 2555-EZ—line 6 of ES Worksheet | Worksheet 2-6 | 37 |
| to refigure your estimated tax during the year | Worksheet 2-7 | 37 |
| to figure your annualized estimated tax payments | Worksheet 2-8 | 38-39 |
| to reduce your itemized deductions for line 6 of Worksheet 2-8 because line 3 of Worksheet 2-8 is more than $159,950 ($79,975 if married filing separately) | Worksheet 2-9 | 39 |
| to reduce your exemptions for line 10 of Worksheet 2-8 because line 3 of Worksheet 2-8 is more than $119,975 | Worksheet 2-10 | 40 |
| to estimate your income tax for line 12 of Worksheet 2-8 if estimated income includes capital gains or qualified dividends | Worksheet 2-11 | 41 |
| to estimate your income tax for line 12 of Worksheet 2-8 if you expect to claim a foreign earned income exclusion or housing exclusion on Form 2555 or Form 2555-EZ | Worksheet 2-12 | 42 |
| 2008 Tax Rate Schedules | 40 | |
| 2008 Standard Deduction Tables | 43 |
2008 Estimated Tax Worksheet
Worksheet 2-1. 2008 Estimated Tax Worksheet—Line 1 Expected Taxable Social Security and Railroad Retirement Benefits
| 1. | Enter your expected social security and railroad retirement benefits | 1. | |||
| 2. | Enter one-half of line 1 | 2. | |||
| 3. | Enter your expected total income. Do not include any social security and railroad retirement benefits, nontaxable interest income, nontaxable IRA distributions, or nontaxable pension distributions | 3. | |||
| 4. | Enter your expected nontaxable interest income | 4. | |||
| 5. | Enter the total of any exclusions or adjustments for:
| 5. | |||
| 6. | Add lines 2, 3, 4, and 5 | 6. | |||
| 7. | Enter your expected adjustments to income. Do not include any student loan interest deduction or domestic production activities deduction. | 7. | |||
| 8. | Subtract line 7 from line 6. If zero or less, stop here. Do not include any social security or railroad retirement benefits in the amount on line 1 of your 2008 Estimated Tax Worksheet | 8. | |||
| 9. | Enter $25,000 ($32,000 if you expect to file married filing jointly; $0 if you expect to file married filing separately and expect to live with your spouse at any time during the year) | 9. | |||
| 10. | Subtract line 9 from line 8. If zero or less, stop here. Do not include any social security or railroad retirement benefits in the amount on line 1 of your 2008 Estimated Tax Worksheet | 10. | |||
| 11. | |||||