Publication 505 (2020), Tax Withholding and Estimated Tax

For use in 2020

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go.

Withholding. If you are an employee, your employer probably withholds income tax from your pay. In addition, tax may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. The amount withheld is paid to the IRS in your name.

Estimated tax. If you don’t pay your tax through withholding, or don’t pay enough tax that way, you might have to pay estimated tax. People who are in business for themselves will generally have to pay their tax this way. You may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rents, and royalties. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.

This publication explains both of these methods. It also explains how to take credit on your return for the tax that was withheld and for your estimated tax payments.

If you didn’t pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty. Generally, the IRS can figure this penalty for you.

Nonresident aliens.

Before completing Form W-4, Employee’s Withholding Certificate, nonresident alien employees should see Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens (Rev. January 2020), which provides nonresident aliens who are not exempt from withholding instructions for completing Form W-4, and the Instructions for Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Also, see chapter 8 of Pub. 519, U.S. Tax Guide for Aliens, for important information on withholding.

Proposed regulations on income tax withholding.

Proposed regulations on income tax withholding were published in the Federal Register on February 13, 2020 (at 85 FR 8344). Employees and employers may rely on these proposed regulations.

Comments and suggestions.

We welcome your comments about this publication and your suggestions for future editions.

You can send us comments through IRS.gov/FormComments. Or, you can write to: Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. We can’t answer tax questions sent to the above address.

Tax questions.

If you have a tax question not answered by this publication or the How To Get Tax Help section at the end of this publication, go to the IRS Interactive Tax Assistant page at IRS.gov/Help/ITA where you can find topics using the search feature or by viewing the categories listed.

Getting tax forms, instructions, and publications.

Visit IRS.gov/Forms to download current and prior-year forms, instructions, and publications.

Ordering tax forms, instructions, and publications.

Go to IRS.gov/OrderForms to order current forms, instructions, and publications; call 800-829-3676 to order prior-year forms and instructions. Your order should arrive within 10 business days.

Use your 2019 tax return as a guide in figuring your 2020 estimated tax, but be sure to consider the following.

Extended due date. Pursuant to Notice 2020-18, the due date for your first estimated tax payment is automatically postponed from April 15, 2020, to July 15, 2020. Likewise, pursuant to Notice 2020-23, the due date for your second estimated tax payment is automatically postponed from June 15, 2020, to July 15, 2020.For more information, and to see if this relief gets updated, see Filing and Payment Deadlines Questions and Answers on IRS.gov.

Coronavirus tax relief for self-employed individuals paying estimated taxes. Coronavirus Aid, Relief, and Economic Security (CARES) Act permits self-employed individuals making estimated tax payments to defer the payment of 50% of the social security tax on net earnings from self-employment imposed for the period beginning on March 27, 2020, and ending December 31, 2020. This means that 50% of the social security tax imposed on net earnings from self-employment earned during the period beginning on March 27, 2020, and ending December 31, 2020, is not used to calculate the installments of estimated tax due.Additionally, the Families First Coronavirus Relief Act (FFCRA) helps self-employed individuals affected by coronavirus by providing paid sick leave and paid family leave credits equivalent to those that employers are required to provide their employees for qualified sick leave wages and qualified family leave wages paid during the period beginning April 1, 2020, and ending December 31, 2020. The FFCRA allows self-employed individuals to claim credits for up to 10 days of “paid sick leave” if they are unable to work or telework due to circumstances related to coronavirus and up to 50 days of “paid family leave” if they are unable to work or telework because they are caring for a child due to circumstances related to coronavirus. Eligible self-employed individuals may fund these sick leave and family leave equivalents by taking into account the credit to which the individual is entitled and will claim on Form 1040 or 1040-SR in determining required estimated tax payments. This means that an eligible self-employed individual can effectively reduce payments of estimated income taxes that the individual would otherwise be required to make if the individual was not entitled to the credit on Form 1040 or 1040-SR. More information on the credits will be available later this year at Coronavirus Tax Relief and Economic Impact Payments on IRS.gov.

Publication 505 changes. Chapters 3 and 4 have been removed. You can find most of the information previously found in those chapters in the Instructions for Form 2210.

Extended tax provisions. Recent legislation extended certain tax benefits that had expired at the end of 2017 through 2020. These tax benefits include the following.

Tuition and fees deduction.

Deduction for mortgage insurance premiums.

Nonbusiness energy property credit.

Alternative fuel vehicle refueling credit.

Indian employment credit.

 

Form W-4 revised. Form W-4, Employee’s Withholding Certificate, has been revised for 2020 to help more easily and accurately figure the correct amount of your withholding. The new form does not use “withholding allowances.”

Standard deduction amount increased. For 2020, the standard deduction amount has been increased for all filers, and the amounts are as follows.

Single or Married Filing Separately—$12,400.

Married Filing Jointly or Qualifying Widow(er)—$24,800.

Head of Household—$18,650.

Due to the increase in the standard deduction and reduced usage of itemized deductions, you may want to consider filing a new Form W-4.

Lifetime learning credit income limits. In order to claim a lifetime learning credit, your modified adjusted gross income (MAGI) must be less than $59,000 ($118,000 if married filing jointly).

Retirement savings contribution credit income limits increased. In order to claim this credit for 2020, your MAGI must be less than $32,500 ($65,000 if married filing jointly; $48,750 if head of household).

Adoption credit or exclusion. The maximum adoption credit or exclusion for employer-provided adoption benefits has increased to $14,300. In order to claim either the credit or exclusion, your MAGI must be less than $254,520.

Earned income credit (EIC). You may be able to take the EIC in 2020 if:

Three or more children lived with you and you earned less than $50,954 ($56,844 if married filing jointly),

Two children lived with you and you earned less than $47,440 ($53,330 if married filing jointly),

One child lived with you and you earned less than $41,756 ($47,646 if married filing jointly), or

A child didn’t live with you and you earned less than $15,820 ($21,710 if married filing jointly).

Also, the maximum MAGI you can have and still get the credit has increased. You may be able to take the credit if your MAGI is less than the amount in the above list that applies to you. The maximum investment income you can have and get the credit is $3,650 for 2020.

Future developments. The IRS has created a page on IRS.gov for information about Pub. 505 at IRS.gov/Pub505. Information about any future developments affecting Pub. 505 (such as legislation enacted after we release it) will be posted on that page.

Social security tax. Generally, each employer for whom you work during the tax year must withhold social security tax up to the annual limit. The annual limit is $137,700 in 2020.

Individual taxpayer identification number (ITIN) renewal. If you were assigned an ITIN before January 1, 2013, or if you have an ITIN that you haven’t included on a tax return in the last 3 consecutive years, you may need to renew it. For more information, see the Instructions for Form W-7.

Advance payments of the premium tax credit. If you buy health insurance through the Health Insurance Marketplace, you may be eligible to have advance payments of the premium tax credit paid on your behalf to the insurance company. Receiving too little or too much in advance will affect your refund or balance due. Promptly report changes in your income or family size to your Marketplace. See Form 8962 and its instructions for more information.

Additional Medicare Tax. Generally, a 0.9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act compensation, and self-employment income over $200,000 if you are filing as single, head of household, or qualifying widow(er); over $250,000 if you are married filing jointly; and over $125,000 if you are married filing separately. You may need to include this amount when figuring your estimated tax. You may also request that your employer deduct and withhold an additional amount of income tax withholding from your wages on Form W-4.

Net Investment Income Tax (NIIT). You may be subject to NIIT. NIIT is a 3.8% tax on the lesser of net investment income or the excess of your MAGI over $200,000 ($250,000 if married filing jointly or qualifying widow(er); $125,000 if married filing separately). NIIT may need to be included when figuring estimated tax. You may also request that your employer deduct and withhold an additional amount of income tax withholding from your wages on Form W-4.

Photographs of missing children. The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 800-THE-LOST (800-843-5678) if you recognize a child.

This chapter discusses income tax withholding on:

Salaries and wages,

Tips,

Taxable fringe benefits,

Sick pay,

Pensions and annuities,

Gambling winnings,

Unemployment compensation, and

Certain federal payments.

This chapter explains in detail the rules for withholding tax from each of these types of income. The discussion of salaries and wages includes an explanation of how to complete Form W-4.

This chapter also covers backup withholding on interest, dividends, and other payments.

Form (and Instructions)

W-4 Employee’s Withholding Certificate

W-4P Withholding Certificate for Pension or Annuity Payments

W-4S Request for Federal Income Tax Withholding From Sick Pay

W-4V Voluntary Withholding Request

See How To Get Tax Help at the end of this publication for information about getting these publications and forms.

Income tax is withheld from the pay of most employees. Your pay includes your regular pay, bonuses, commissions, and vacation allowances. It also includes reimbursements and other expense allowances paid under a nonaccountable plan. See Supplemental Wages , later, for definitions of accountable and nonaccountable plans.

If your income is low enough that you won’t have to pay income tax for the year, you may be exempt from withholding. This is explained under Exemption From Withholding , later.

You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2.

Military retirees.

Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes.

Household workers.

If you are a household worker, you can ask your employer to withhold income tax from your pay. A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter.

Tax is withheld only if you want it withheld and your employer agrees to withhold it. If you don’t have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2.

Farmworkers.

Generally, income tax is withheld from your cash wages for work on a farm unless your employer both:

Pays you cash wages of less than $150 during the year, and

Has expenditures for agricultural labor totaling less than $2,500 during the year.

 

Differential wage payments.

When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. The wages and withholding will be reported on Form W-2, Wage and Tax Statement.

The amount of income tax your employer withholds from your regular pay depends on three things.

The amount you earn in each payroll period.

Your payroll period.

The information you give your employer on Form W-4.

 

Form W-4 includes four steps that will give information to your employer to figure your withholding. Complete Steps 2 through 4 only if they apply to you.

Step 1.

Enter your personal information, including your anticipated filing status. Your anticipated filing status will determine the standard deduction and tax rates used to figure your withholding.

Step 2.

Complete this step if you (1) hold more than one job at a time, or (2) are married and plan to file a joint return and your spouse also works.

If you or your spouse have another job, complete Steps 3 through 4(b) on only one Form W-4. Your withholding will be most accurate if you do this on the Form W-4 for the highest-paying job.

Step 3.

Complete this step if you have dependents and think you may be eligible to claim the child tax credit or credit for other dependents on your tax return. Also, complete this step if you want to include an estimate of your other tax credits (for example, an education credit or the foreign tax credit).

Step 4.

Complete this optional step to make other adjustments.

Other income (not from jobs).

Deductions (other than the standard deduction).

Any additional amounts you want to withhold from each check.

 

When you start a new job, you must fill out a Form W-4 and give it to your employer. Your employer should have copies of the form. If you need to change the information later, you must fill out a new form.

If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. You may be able to avoid overwithholding if your employer agrees to use the part-year method. See Part-Year Method , later, for more information.

Employee also receiving pension income.

If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. However, you can choose to split your withholding between your pension and job in any manner.

During the year, changes may occur to your marital status, adjustments, deductions, or credits you expect to claim on your tax return. When this happens, you may need to give your employer a new Form W-4 to change your withholding.

If a change in personal circumstances reduces the amount of withholding you are entitled to claim, you are required to give your employer a new Form W-4 within 10 days after the change occurs.

You can choose to rely on the proposed regulations in determining whether you are required to furnish a new Form W-4 to your employer in the event of a change of status, and, if you make that choice, the following rules apply.

Change of status resulting in withholding less than your tax liability.

If you have one of the changes in the following bullet list and you won’t have enough tax withheld for the remainder of 2020 to cover your income tax liability for 2020, you are required to furnish a new Form W-4 to your employer within 10 days after the date of the change.

 

Your filing status changes from Married Filing Jointly (or Qualifying Widow(er)) to Head of Household or Single (or Married Filing Separately) or from Head of Household to Single (or Married Filing Separately).

You or your spouse start another job, and you chose to use the Multiple Jobs Worksheet or the Tax Withholding Estimator to account for your other job in determining your withholding.

You or your spouse start another job, and as a result file a new 2020 Form W-4, and you or your spouse select the checkbox in Step 2(c) (in this case, you must furnish a new Form W-4 for your first job and select the checkbox in Step 2(c)).

You or your spouse expect a raise of more than $10,000 in regular wages (not a bonus) at a second or third job, and the Form W-4, Step 2(c), checkbox is not selected on your Forms W-4.

You no longer expect to be able to claim a Child Tax Credit you took into account on a previously furnished Form W-4.

Your other credits you took into account on a previously furnished Form W-4 decrease by more than $500.

Your deductions decrease by more than $2,300 from the amount you took into account on a previously furnished Form W-4.

You no longer reasonably expect to claim exemption from withholding.

 

Change of status resulting in withholding that will cover your tax liability.

If you choose to rely on these proposed regulations and have a change of status listed in the previous section, you don’t have to furnish a new Form W-4 for 2020 if after the change you will have enough tax withheld for the remainder of 2020 to cover your income tax liability. However, if you will have enough tax withheld for 2020 to cover your income tax liability after a change or changes in status, but your filing status changes from Married Filing Jointly (or Qualifying Widow(er)) to Head of Household or to Single (or Married Filing Separately) or from Head of Household to Single (or Married Filing Separately) during 2020, you are required to furnish your employer a new Form W-4 for 2021 by December 1, 2020, or, if later, 10 days after the date of the change in filing status, to take effect in 2021.

Otherwise, if you want to change your withholding for any other reason, you can generally do that whenever you wish. See Table 1-1 for examples of personal and financial changes you should consider.

 

Table 1-1. Personal and Financial Changes

 

If you change the amount of your withholding, you can request that your employer withhold using the Cumulative Wage Method , later.

After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too much or too little. If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. You can get a blank Form W-4 from your employer or print the form from IRS.gov.

You can use the Tax Withholding Estimator at IRS.gov/W4App instead of the worksheets in this publication or included with Form W-4 or W-4P to determine whether you need to have your withholding increased or decreased.

You should try to have your withholding match your actual tax liability. If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, you will lose the use of that money until you get your refund. Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. See Table 1-1 for examples.

You can’t give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax.

The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld.

You should check your withholding when any of the following situations occur.

You receive a paycheck stub (statement) covering a full pay period in 2020 showing tax withheld based on 2020 tax rates.

You prepare your 2019 tax return and get a:

Big refund, or

Balance due that is:

More than you can comfortably pay, or

Subject to a penalty.

There are changes in your life or financial situation that affect your tax liability. See Table 1-1.

There are changes in the tax law that affect your tax liability.

 

You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld. You can also use the Tax Withholding Estimator at IRS.gov/W4App. If you use the worksheets and tables in this publication, follow these steps.

Fill out Worksheet 1-3 to project your total federal income tax liability for 2020.

Fill out Worksheet 1-5 to project your total federal withholding for 2020 and compare that with your projected tax liability from Worksheet 1-3.

 

If you are not having the correct amount of tax withheld, line 6 of Worksheet 1-5 will show you how to adjust the amount withheld each payday. For ways to increase the amount of tax withheld, see How Do You Increase Your Withholding, later.

If line 5 of Worksheet 1-5 shows that you are having more tax withheld than necessary, see How Do You Decrease Your Withholding, later, for ways to decrease the amount of tax you have withheld each payday.

Detailed instructions for completing a new Form W-4 to adjust your withholding follow Worksheet 1-5.

You can increase your withholding by entering an additional amount that you want withheld from each paycheck on Form W-4.

Requesting an additional amount be withheld.

You can request that an additional amount be withheld from each paycheck by entering the additional amount in Step 4(c) of Form W-4. To see if you should request an additional amount be withheld, complete Worksheets 1-3 and 1-5. Complete a new Form W-4 if the amount on Worksheet 1-5, line 5:

Is more than you want to pay with your tax return or in estimated tax payments throughout the year, or

Would cause you to pay a penalty when you file your tax return for 2020.

 

What if I have more than one job or my spouse also has a job?

You are more likely to need to increase your withholding if you have more than one job or if you are married filing jointly and your spouse also works. If this is the case, you can increase your withholding for one or more of the jobs.

You can apply the amount on Worksheet 1-5, line 5, to only one job or divide it between the jobs any way you wish. For each job, determine the extra amount that you want to apply to that job and divide that amount by the number of paydays remaining in 2020 for that job. This will give you the additional amount to enter on the Form W-4 you will file for that job. You need to give your employer a new Form W-4 for each job for which you are changing your withholding.

Example.

Meg Green works in a store and earns $46,000 a year. Her husband John works in a factory, earns $68,000 a year, and has 49 pay periods left. In 2020, they will also have $184 in taxable interest and $1,000 of other taxable income. They expect to file a joint income tax return. Meg and John complete Worksheets 1-3, 1-4, and 1-5. Line 5 of Worksheet 1-5 shows that they will owe an additional $4,459 after subtracting their withholding for the year. They can divide the $4,459 any way they want. They can enter an additional amount on either of their Forms W-4, or divide it between them. They decide to have the additional amount withheld from John’s wages, so they enter $91 ($4,459 ÷ 49 remaining paydays) on his Form W-4 in Step 4(c).

If your completed Worksheets 1-3 and 1-5 show that you may have more tax withheld than your projected tax liability for 2020, you may be able to decrease your withholding by following the instructions in Worksheet 1-5.

Table 1-2 shows many of the tax credits you may be able to use to decrease your withholding. For a complete list of credits you may be able to claim, see the 2019 Instructions for Forms 1040 and 1040-SR.

Step 3 of Form W-4 provides instructions for determining the amount of the child tax credit and the credit for other dependents. You can also include other tax credits in Step 3 of Form W-4. To do so, complete Worksheet 1-6 and add the amount from line 11 of that worksheet to the amount you are entering for other dependents in Step 3 of Form W-4. Including these credits will increase your paycheck and reduce the amount of any refund you may receive when you file your tax return.

If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4.

If the change is for next year, your new Form W-4 won’t take effect until next year.

When you first began receiving your pension, you told the payer how much tax to withhold, if any, by completing Form W-4P, Withholding Certificate for Pension or Annuity Payments (or similar form). However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. You completed either form based on your projected income at that time. Now that you are returning to the workforce, your new Form W-4 (given to your employer) and your Form W-4 or W-4P (on file with your pension plan) must work together to determine the correct amount of withholding for your new amount of income.

Use the worksheets that come with Form W-4P to figure out how many withholding allowances you are entitled to claim. Start off with the Personal Allowances Worksheet. Then, if you will be itemizing your deductions, claiming adjustments to income, or have additional income (such as interest or dividends), complete the Deductions, Adjustments, and Additional Income Worksheet.

The third worksheet, the Multiple Pensions/More-Than-One-Income Worksheet, is the most important for this situation. If you have more than one source of income, in order to have enough withholding to cover the tax on your higher income, you may need to claim fewer withholding allowances or request that your employer withhold an additional amount from each paycheck.

Once you have figured out how many allowances you are entitled to claim, look at the income from both your pension and your new job, and how often you receive payments. It is your decision how to divide up your withholding allowances between these sources of income. For example, you may want to “take home” most of your weekly paycheck to use as spending money and use your monthly pension to “pay the bills.” In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4.

There are a couple of ways you can get a better idea of how much tax will be withheld when claiming a certain number of allowances.

Use the withholding tables in Pub.15-T, Federal Income Tax Withholding Methods. For determining the amount that will be withheld from a pension or annuity, use the tables in either Section 3 or Section 5 of Pub. 15-T, which are used for Forms W-4 from 2019 or earlier. The tables in those sections also apply to Forms W-4P, including 2020 Forms W-P.

Contact your pension provider and your employer’s payroll department.

 

And remember, this isn’t a final decision. If you don’t get the correct amount of withholding with the first Forms W-4 and W-4P you submit, you should refigure your withholding using the information and worksheets in this publication, or the resources mentioned above.

You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. You may need more tax withheld, or you may need less.

 

Table 1-2. Tax Credits for 2020

 

In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules.

You accurately complete all the Form W-4 worksheets that apply to you.

You give your employer a new Form W-4 when changes occur.

 

But because the worksheets and withholding methods don’t account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations.

You are married and both you and your spouse work.

You have more than one job at a time.

You have nonwage income, such as interest, dividends, alimony, or unemployment compensation.

You will owe additional amounts with your return.

Your withholding is based on obsolete Form W-4 information for a substantial part of the year.

You work only part of the year.

You change the amount of your withholding during the year.

You are subject to Additional Medicare Tax or NIIT. If you anticipate liability for Additional Medicare Tax or NIIT, you may request that your employer withhold an additional amount of income tax withholding on Form W-4.

 

If any of these situations apply to you, you can use the Tax Withholding Estimator at IRS.gov/W4App to see if you need to change your withholding.

If you have self-employment income or owe self-employment tax, you should use the worksheets in this publication to determine if you should pay estimated tax.

If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. To be eligible for the part-year method, you must meet both of the following requirements.

You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. You can’t use a fiscal year.

You must not expect to be employed for more than 245 days during the year. To figure this limit, count all calendar days that you are employed (including weekends, vacations, and sick days) beginning with the first day you are on the job for pay and ending with your last day of work. If you are temporarily laid off for 30 days or less, count those days too. If you are laid off for more than 30 days, don’t count those days. You won’t meet this requirement if you begin working before May 1 and expect to work for the rest of the year.

 

How to apply for the part-year method.

You must ask your employer in writing to use this method. The request must state all three of the following.

The date of your last day of work for any prior employer during the current calendar year.

That you don’t expect to be employed more than 245 days during the current calendar year.

That you use the calendar year as your tax year.

 

If you change your withholding during the year, too much or too little tax may have been withheld for the period before you made the change. You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. You must ask your employer in writing to use this method.

To be eligible, your payroll periods (weekly, biweekly, etc.) must have been the same since the beginning of the year.

Tax Withholding Estimator.

If you are concerned that you may be having too much or too little income tax withheld from your pay, the IRS provides a withholding estimator on its website. Go to IRS.gov/W4App. It can help you determine the correct amount to be withheld any time during the year.

It may be helpful for you to know some of the withholding rules your employer must follow. These rules can affect how to fill out your Form W-4 and how to handle problems that may arise.

New Form W-4.

When you start a new job, your employer should give you a Form W-4 to fill out. Beginning with your first payday, your employer will use the information you give on the form to figure your withholding.

If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in.

No Form W-4.

If you don’t give your employer a Form W-4, your employer should treat you as though you checked the box for Single or Married filing separately in Step 1(c) and made no entries in Step 2, Step 3, or Step 4 of the 2020 Form W-4. However, if you were working for the same employer in 2019, were paid wages in 2019, and failed to furnish a Form W-4, your employer should continue to treat you as single and claiming zero allowances on a 2019 Form W-4.

Repaying withheld tax.

If you find you are having too much tax withheld because you didn’t account for all your dependents or deductions you are entitled to, you should give your employer a new Form W-4. Your employer can’t repay any of the tax previously withheld. Instead, claim the full amount withheld when you file your tax return.

However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you don’t have to fill out a new Form W-4 to have your withholding lowered to the correct amount. Your employer can repay the amount that was withheld incorrectly. If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return.

IRS review of your withholding.

Your withholding or any claim for a complete exemption from withholding is subject to review by the IRS. Your employer may be required to send a copy of the Form W-4 to the IRS. There is a penalty for supplying false information on Form W-4. See Penalties , later.

If the IRS determines that you have overstated your withholding or can’t claim a complete exemption from withholding, the IRS will issue a notice that specifies the withholding arrangement permitted for the employee (commonly referred to as a “lock-in letter”) to both you and your employer.

The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. If you believe that you are entitled to claim complete exemption from withholding or that the IRS determination was otherwise incorrect, you must submit a new Form W-4 and a written statement to support your claims made on Form W-4 that would decrease federal income tax withholding to the IRS. Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. At the end of this period, if you haven’t responded or if your response isn’t adequate, your employer will be required to withhold based on the original lock-in letter.

After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum withholding specified in that letter.

If you later believe that you are entitled to claim exemption from withholding or otherwise adjust your withholding, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. Your employer must continue to figure your withholding on the basis previously determined by the IRS until the IRS advises your employer otherwise.

At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. Your employer must then withhold tax based on this new Form W-4.

Additional information is available at IRS.gov. Enter “withholding compliance questions” in the search box.

If you claim exemption from withholding, your employer won’t withhold federal income tax from your wages. The exemption applies only to income tax, not to social security or Medicare tax.

You can claim exemption from withholding for 2020 only if both of the following situations apply.

For 2019, you had a right to a refund of all federal income tax withheld because you had no tax liability.

For 2020, you expect a refund of all federal income tax withheld because you expect to have no tax liability.

 

Use Figure 1-A to help you decide whether you can claim exemption from withholding. Don’t use Figure 1-A if you:

Are 65 or older,

Are blind,

Will itemize deductions on your 2020 return, or

Will claim any tax credits on your 2020 return.

These situations are discussed later.

Students.

If you are a student, you are not automatically exempt. If you work only part time or during the summer, you may qualify for exemption from withholding.

Example 1.

You are a high school student and expect to earn $2,500 from a summer job. You don’t expect to have any other income during the year, and your parents will be able to claim you as a dependent on their tax return. You worked last summer and had $375 federal income tax withheld from your pay. The entire $375 was refunded when you filed your 2019 return. Using Figure 1-A, you find that you can claim exemption from withholding.

Figure 1-A: Exemption From Withholding on Form W-4

Figure 1-A. Exemption From Withholding on Form W-4

Summary: This is a flowchart used to determine if the taxpayer is allowed to claim exemption from withholding on his Form W-4.

Start

This is the start of the flowchart.

Decision (1)

For 2019, did you have a right to a refund of ALL federal income tax withheld because you had NO tax liability?

Process (a)

You CAN’T claim exemption from withholding.

Decision (2)

For 2020, will someone (such as your parent) be able to claim you as a dependent?

Decision (3)

Will your 2020 total income be more than the amount shown below for your filing status?

Process (b)

You CAN claim exemption from withholding.

Decision (4)

Will your 2020 income be more than $1,100?

Decision (5)

Will your 2020 income include more than $350 of unearned income (interest, dividends, etcetera)?

Decision (6)

Will your 2020 total income be $12,400 or less?

End

This is the end of the flowchart.

Please click here for the text description of the image.

 

Example 2.

The facts are the same as in Example 1, except that you also have a savings account and expect to have $400 interest income during the year. Using Figure 1-A, you find that you can’t claim exemption from withholding because your unearned income will be more than $350 and your total income will be more than $1,100.

You may have to file a tax return, even if you are exempt from withholding. See Pub. 501 to see whether you must file a return.

Age 65 or older or blind. If you are 65 or older or blind, use Worksheet 1-1 or Worksheet 1-2 to help you decide whether you can claim exemption from withholding. Don’t use either worksheet if you will itemize deductions or claim tax credits on your 2020 return. Instead, see Itemizing deductions or claiming credits next.

Itemizing deductions or claiming credits.

If you had no tax liability for 2019, and you will:

Itemize deductions, or

Claim a tax credit,

use Worksheet 2-1 (also, see chapter 2) to figure your 2020 expected tax liability. You can claim exemption from withholding only if your total expected tax liability (line 11c of the worksheet) is zero.

Claiming exemption from withholding.

To claim exemption, you must give your employer a Form W-4. Write “Exempt” on the form in the space below Step 4(c) and complete Steps 1(a), 1(b), and 5. Don’t complete any other steps.

If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. If you claim exemption in 2020 but you expect to owe income tax for 2021, you must file a new Form W-4 by December 1, 2020.

Your claim of exempt status may be reviewed by the IRS. See IRS review of your withholding , earlier.

An exemption is good for only 1 year.

You must give your employer a new Form W-4 by February 15 each year to continue your exemption.

Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. The payer can figure withholding on supplemental wages using the same method used for your regular wages. However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a 22% flat rate under certain circumstances as explained in the section on supplemental wages in Pub. 15.

Expense allowances.

Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer’s payments that are more than your proven expenses.

Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you don’t return the excess payments within a reasonable period of time.

Accountable plan.

To be an accountable plan, your employer’s reimbursement or allowance arrangement must include all three of the following rules.

Your expenses must have a business connection. That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.

You must adequately account to your employer for these expenses within a reasonable period of time.

You must return any excess reimbursement or allowance within a reasonable period of time.

 

An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.

The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.

You receive an advance within 30 days of the time you have an expense.

You adequately account for your expenses within 60 days after they were paid or incurred.

You return any excess reimbursement within 120 days after the expense was paid or incurred.

You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.

 

Nonaccountable plan.

Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan.

For more information about accountable and nonaccountable plans, see chapter 6 of Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

You may have to pay a penalty of $500 if both of the following apply.

You make statements on your Form W-4 that reduce the amount of tax withheld.

You have no reasonable basis for those statements at the time you prepare your Form W-4.

 

There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both.

These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. A simple error or an honest mistake won’t result in one of these penalties.

The tips you receive while working on your job are considered part of your pay. You must include your tips on your tax return on the same line as your regular pay. However, tax isn’t withheld directly from tip income, as it is from your regular pay. Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay.

Reporting tips to your employer.

If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. The report is due by the 10th day of the following month.

If you have more than one job, make a separate report to each employer. Report only the tips you received while working for that employer, and only if they total $20 or more for the month.

How employer figures amount to withhold.

The tips you report to your employer are counted as part of your income for the month you report them. Your employer can figure your withholding in either of two ways.

By withholding at the regular rate on the sum of your pay plus your reported tips.

By withholding at the regular rate on your pay plus a percentage of your reported tips.

 

Not enough pay to cover taxes.

If your regular pay isn’t enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage.

If you don’t give your employer money to cover the shortage, your employer first withholds as much Medicare tax and social security or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. If not enough tax is withheld, you may have to pay estimated tax. When you file your return, you also may have to pay any Medicare and social security tax or railroad retirement tax your employer could not withhold.

Tips not reported to your employer.

On your tax return, you must report all the tips you receive during the year, even tips you don’t report to your employer (this includes the value of any noncash tips you received, such as tickets, passes, or other items of value). Make sure you are having enough tax withheld, or are paying enough estimated tax (see chapter 2), to cover all your tip income.

Allocated tips.

If you work in a large food or beverage establishment, your employer may have to report an allocated amount of tips on your Form W-2.

Your employer should not withhold income tax, Medicare tax, and social security or railroad retirement tax on the allocated amount. Withholding is based only on your pay plus your reported tips. Your employer should refund to you any incorrectly withheld tax.

More information.

For more information on the reporting and withholding rules for tip income and on tip allocation, see Pub. 531, Reporting Tip Income.

The value of certain noncash fringe benefits you receive from your employer is considered part of your pay. Your employer must generally withhold income tax on these benefits from your regular pay.

Although the value of your personal use of an employer-provided car, truck, or other highway motor vehicle is taxable, your employer can choose not to withhold income tax on that amount. Your employer must notify you if this choice is made.

When benefits are considered paid.

Your employer can choose to treat a fringe benefit as paid by the pay period, by the quarter, or on some other basis as long as the benefit is considered paid at least once a year. Your employer can treat the benefit as being paid on one or more dates during the year, even if you get the entire benefit at one time.

Special rule.

Your employer can choose to treat a benefit provided during November or December as paid in the next year. Your employer must notify you if this rule is used.

Example.

Your employer considers the value of benefits paid from November 1, 2018, through October 31, 2019, as paid to you in 2019. To determine the total value of benefits paid to you in 2020, your employer will add the value of any benefits paid in November and December of 2019 to the value of any benefits paid in January through October of 2020.

Exceptions.

Your employer can’t choose when to withhold tax on the transfer of either real property or personal property of a kind normally held for investment (such as stock). Your employer must withhold tax on these benefits at the time of the transfer.

How withholding is figured.

Your employer can either add the value of a fringe benefit to your regular pay and figure income tax withholding on the total or withhold a flat 22% of the benefit’s value.

If the benefit’s actual value can’t be determined when it is paid or treated as paid, your employer can use a reasonable estimate. Your employer must determine the actual value of the benefit by January 31 of the next year. If the actual value is more than the estimate, your employer must pay the IRS any additional withholding tax required. Your employer has until April 1 of that next year to recover from you the additional income tax paid to the IRS for you.

How your employer reports your benefits.

Your employer must report on Form W-2 the total of the taxable fringe benefits paid or treated as paid to you during the year and the tax withheld for the benefits. These amounts can be shown either on the Form W-2 for your regular pay or on a separate Form W-2. If your employer provided you with a car, truck, or other motor vehicle and chose to treat all of your use of it as personal, its value must be either separately shown on Form W-2 or reported to you on a separate statement.

More information.

For information on fringe benefits, see Fringe Benefits under Employee Compensation in Pub. 525, Taxable and Nontaxable Income.

Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. To qualify as sick pay, it must be paid under a plan to which your employer is a party.

If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate.

However, if you receive sick pay from a third party who isn’t acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. See Form W-4S , later.

If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and are usually not taxable.

Union agreements.

If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. See your union representative or your employer for more information.

Form W-4S.

If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W-4S. Its instructions contain a worksheet you can use to figure the amount you want withheld. They also explain restrictions that may apply.

Give the completed form to the payer of your sick pay. The payer must withhold according to your directions on the form.

Form W-4S remains in effect until you change or cancel it, or stop receiving payments. You can change your withholding by giving a new Form W-4S or a written notice to the payer of your sick pay.

Estimated tax.

If you don’t request withholding on Form W-4S, or if you don’t have enough tax withheld, you may have to pay estimated tax. If you don’t pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. See chapter 2.

Income tax will usually be withheld from your pension or annuity distributions unless you choose not to have it withheld. This rule applies to distributions from:

An IRA;

A life insurance company under an endowment, annuity, or life insurance contract;

A pension, annuity, or profit-sharing plan;

A stock bonus plan; and

Any other plan that defers the time you receive compensation.

 

The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). Income tax withholding from an ERD is mandatory. ERDs are discussed under Eligible Rollover Distributions , later.

Nontaxable part.

The part of your pension or annuity that is a return of your investment in your retirement plan (the amount you paid into the plan or its cost to you) isn’t taxable. Income tax won’t be withheld from the part of your pension or annuity that isn’t taxable. The tax withheld will be figured on, and can’t be more than, the taxable part.

For information about figuring the part of your pension or annuity that isn’t taxable, see Pub. 575, Pension and Annuity Income.

Withholding from periodic payments of a pension or annuity is figured similarly to withholding from certain salaries and wages. To tell the payer of your pension or annuity how much you want withheld, fill out Form W-4P or a similar form provided by the payer. 2020 Form W-4P has different entries and is completed differently from the 2020 Form W-4. Withholding on 2020 Form W-4P is figured under the same rules that are used in calculating withholding in 2020 for employees who have a 2019 (or prior year) Form W-4 in effect. Because the forms and lines on the 2020 Form W-4 and the 2020 Form W-4P are different this year, the rules discussed under Salaries and Wages , earlier, for completing the 2020 Form W-4 should not be used in completing the 2020 Form W-4P. See the instructions for the 2020 Form W-4P and the following material for guidance in filling out your 2020 Form W-4P.

The more allowances you claim on Form W-4P, the less income tax your employer will withhold. You will have the most tax withheld if you claim “0” allowances. The number of allowances you can claim depends on the following factors.

Whether you will file as single, head of household, married filing jointly, or married filing separately.

Whether you have income from more than one source.

What credits you expect to claim for children and other dependents.

What other credits you expect to claim for the year.

What deductions, adjustments, and nonwage income (such as dividends or interest) you expect to have for the year.

 

If you are married (filing jointly), it also depends on whether your spouse also works or receives pension or annuity payments and claims any allowances on his or her own Form W-4P or withholding on his or her own Form W-4.

Form W-4P worksheets.

Form W-4P has worksheets to help you figure how many withholding allowances you can claim. The worksheets are for your own records. Don’t give them to the payer of your pension or annuity.

Complete only one set of Form W-4P worksheets, no matter how many sources of income you have. If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages or receive pension or annuity payments and each must give Form W-4 or W-4P to your employers or the payers of your pension or annuity payments. Complete separate sets of worksheets only if you and your spouse will file separate returns.

Complete all worksheets that apply to your situation. The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your periodic payments will match, as closely as possible, the amount of income tax you will owe at the end of the year.

Use the Personal Allowances Worksheet on page 4 of Form W-4P to figure your withholding allowances based on all of the following that apply.

Filing status.

Child tax credit.

Credit for other dependents.

Other credits.

 

Filing Status (worksheet lines A, B, and C).

Single or married but filing separately from your spouse.

You can claim an allowance for yourself. If you expect to file as single or married filing separately on your 2020 tax return, enter “2” on line A of the worksheet.

Married filing jointly or qualifying widow(er).

You can claim an allowance if you will file as married filing jointly or qualifying widow(er). If you expect to file as married filing jointly or qualifying widow(er) on your 2020 tax return, enter “1” on line B of the worksheet.

Head of household.

Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that:

Was the main home for all of 2020 of your parent whom you can claim as your dependent, or

You lived in for more than half the year with your qualifying child or any other person whom you can claim as your dependent.

 

For more information, see Pub. 501.

If you expect to file as head of household on your 2020 tax return, enter “1” on line C of the worksheet. In addition, see line 12 of Worksheet 1-6A for an additional amount to enter on line G of the Personal Allowances Worksheet.

Child tax credit (worksheet line D).

If your total income will be less than $72,351 ($105,051 if married filing jointly), enter “4” on line D for each eligible child.

If your total income will be from $72,351 to $181,950 ($105,051 and $351,400 if married filing jointly), enter “2” on line D for each eligible child.

If your total income will be from $181,951 to $200,000 ($351,401 and $400,000 if married filing jointly), enter “1” on line D for each eligible child.

If your total income is higher than $200,000 ($400,000 if married filing jointly), enter “-0-” on line D.

To see if your child is an eligible child for the child tax credit, see the instructions for Dependents in the Form 1040 and 1040-SR instructions.

For more information about the child tax credit, see the Instructions for Forms 1040 and 1040-SR.

Instead of using line D, you can choose to take the child tax credit into account on line 1 of Worksheet 1-6A.

Credit for other dependents (worksheet line E).

If your total income will be less than $72,351 ($105,051 if married filing jointly), enter “1” on line E for each eligible dependent.

If your total income will be from $72,351 to $181,950 ($105,051 and $351,400 if married filing jointly), enter “1” on line E for every two dependents (for example, you would enter -0- for one dependent, “1” if you have two or three dependents, or “2” if you have four dependents).

If your total income will be higher than $181,950 ($351,400 if married filing jointly), enter -0- on line E.

Instead of using line E, you can choose to take the credit for other dependents into account on line 2 of Worksheet 1-6A.

To see who you can claim as a dependent for the credit for other dependents, see the instructions for Dependents in the Form 1040 and 1040-SR instructions. A dependent for purposes of the credit for other dependents also includes an eligible child who had an ITIN but not an SSN by the due date of your 2020 return (including extensions).

Other credits (worksheet line F).

Use Worksheet 1-6A to figure the amount of other credits to enter on line F. In addition to the child tax credit and credit for other dependents, you can take your other credits into account when figuring additional withholding allowances for 2020. See Table 1-2 .

Head of household filers can also use Worksheet 1-6A to further reduce withholding.

Total personal allowances (worksheet line G).

Add lines A through F and enter the total on line G. If you don’t use either of the worksheets on page 5 of Form W-4P, enter the number from line G on line 2 of Form W-4P.

Use the Form W-4P Deductions, Adjustments, and Additional Income Worksheet if you plan to itemize your deductions or claim adjustments to the income on your 2020 tax return and you want to reduce your withholding. Also, use this worksheet to figure out how much to increase the tax withheld from your paycheck if you have a large amount of nonwage income, such as interest or dividends. Complete this worksheet when you have changes to those items to see if you need to change your withholding.

Use the amount of each item you reasonably can expect to show on your return. However, don’t use more than:

The amount shown for that item on your 2019 return (or your 2018 return if you haven’t yet filed your 2019 return), plus

Any additional amount related to a transaction or occurrence (such as payments already made, the signing of an agreement, or the sale of property) that has happened or will happen during 2019 or 2020.

Don’t include any amount shown on your last tax return that has been disallowed by the IRS.

Not itemizing deductions.

If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter “-0-” on line 3 of the worksheet.

Itemized deductions (worksheet line 1).

Enter your estimated total itemized deductions on line 1 of the worksheet.

Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2020. You normally claim these deductions on Schedule A (Form 1040 or 1040-SR). For a full list of itemized deductions, see the 2019 Instructions for Schedule A (Form 1040 or 1040-SR) and What’s New for 2020 , earlier.

Medical and dental expenses that are more than 7.5% of your 2020 adjusted gross income (AGI) (defined under Expected AGI , later).

State and local income or property taxes (up to $10,000).

Deductible home mortgage interest.

Investment interest up to net investment income.

Charitable contributions.

Casualty and theft losses attributable to a federally declared disaster that are more than $100 and 10% of your AGI.

 

Adjustments to income (worksheet line 4).

Enter your estimated total adjustments to income on line 4 of the Deductions, Adjustments, and Additional Income Worksheet.

You can take the following adjustments to income into account when figuring additional withholding allowances for 2020.

Net losses from Schedules C, D, E, and F of Form 1040 or 1040-SR and from Part II of Form 4797, line 18b.

Net operating loss carryovers.

Certain business expenses of reservists, performing artists, and fee-based government officials.

Health savings account or medical savings account deduction.

Certain moving expenses for members of the Armed Forces on active duty.

Deduction for self-employment tax.

Deduction for contributions to self-employed SEP, and qualified SIMPLE plans.

Self-employed health insurance deduction.

Penalty on early withdrawal of savings.

IRA deduction.

Student loan interest deduction.

Jury duty pay given to your employer.

Reforestation amortization and expenses.

Deductible expenses related to income reported on Schedule 1 (Form 1040 or 1040–SR), line 8, from the rental of personal property engaged in for profit.

Repayment of certain supplemental unemployment benefits.

Contributions to pension plans.

Contributions by certain chaplains to plans.

Attorney fees and court costs for certain unlawful discrimination claims.

Attorney fees and court costs for certain whistleblower awards.

Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040 or 1040-SR).

Educator expenses.

 

Nonwage income (worksheet line 6).

Enter on line 6 your estimated total nonwage income (other than tax-exempt income). Nonwage income includes interest, dividends, net rental income, unemployment compensation, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income.

If line 6 is more than line 5, you may not have enough income tax withheld from your wages. See Getting the Right Amount of Tax Withheld .

Net deductions and adjustments (worksheet line 8).

Divide the amount on line 7 by $4,300, drop any fraction, and enter the amount on line 8. If it’s a negative amount, enter it in parentheses.

Example.

If line 7 is $5,200, $5,200 ÷ $4,300 = 1.2. Drop the fraction (0.2) and enter “1” on line 8.

Complete the Multiple Pensions/More-Than-One-Income Worksheet on page 5 of Form W-4P if you (and your spouse if married filing jointly) have more than one source of income subject to withholding (for example, more than one pension, or a pension and a job, or if you have a pension and your spouse works).

Reducing your allowances (worksheet lines 1–3).

On line 1 of the worksheet, enter the number from line G of the Personal Allowances Worksheet (or line 10 of the Deductions, Adjustments, and Additional Income Worksheet, if used). Using Table 1 in the Multiple Pensions/More-Than-One-Income Worksheet, find the number that applies to the lowest-paying pension or job and enter it on line 2. If you are married filing jointly and the amount from the highest-paying pension or job is $75,000 or less and the combined amounts for you and your spouse are $107,000 or less, don’t enter more than “7.”

 

If line 1 is more than or equal to line 2, subtract line 2 from line 1. Enter the result on line 3 (if zero or less, enter -0-) and on Form W-4P, line 2. Don’t use the rest of the worksheet.

If line 1 is less than line 2, enter “-0-” on Form W-4P, line 2. Then, complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding.

Other amounts owed.

If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. The total is the additional withholding needed for the year.

Use Form W-4, not Form W-4P, if you receive any of the following.

Military retirement pay.

Payments from certain nonqualified deferred compensation plans. These are employer plans that pay part of your compensation at a later time, but are not tax-qualified deferred compensation plans. See Nonqualified Deferred Compensation and Section 457 Plans in Pub. 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration.

 

Withholding rules.

The withholding rules for pensions and annuities differ from those for salaries and wages in the following ways.

If you don’t fill out a withholding certificate, tax will be withheld as if you were married and claiming three withholding allowances.

You can choose not to have tax withheld, regardless of how much tax you owed last year or expect to owe this year. You don’t have to qualify for exemption. See Choosing Not To Have Income Tax Withheld , later.

If you don’t give the payer your SSN in the required manner or the IRS notifies the payer before any payment or distribution is made that you gave an incorrect SSN, tax will be withheld as if you were single and were claiming no withholding allowances.

 

Effective date of withholding certificate.

If you give your withholding certificate (Form W-4P or a similar form) to the payer on or before the date your payments start, it will be put into effect by the first payment made more than 30 days after you submit the certificate.

If you give the payer your certificate after your payments start, it will be put into effect with the first payment, which is at least 30 days after you submit it. However, the payer can elect to put it into effect earlier.

Tax will be withheld at a flat 10% rate on any nonperiodic payments you receive, unless you tell the payer not to withhold.

Use Form W-4P, line 3, to specify that an additional dollar amount be withheld. You can also use Form W-4P, line 1, to choose not to have tax withheld. If you want to revoke a choice not to have tax withheld, see Choosing Not To Have Income Tax Withheld , later.

You may need to use Form W-4P to ask for additional withholding. If you don’t have enough tax withheld, you may need to pay estimated tax, as explained in chapter 2.

A distribution you receive that is eligible to be rolled over tax free into a qualified retirement or annuity plan is called an eligible rollover distribution (ERD). This is the taxable part of any distribution from a qualified pension plan or tax-sheltered annuity that isn’t any of the following.

A required minimum distribution.

One of a series of substantially equal periodic pension or annuity payments made over:

Your life (or your life expectancy) or the joint lives of you and your beneficiary (or your life expectancies), or

A specified period of 10 or more years.

A hardship distribution.

 

The payer of a distribution must withhold at a flat 20% rate on any part of an ERD that is distributed rather than rolled over directly to another qualified plan. Withholding on these distributions is mandatory. However, no withholding is required on any part rolled over directly to another plan.

For payments other than ERDs, you can choose not to have income tax withheld. The payer will tell you how to make this choice. If you use Form W-4P, check the box on line 1 to choose not to have withholding. This choice will remain in effect until you decide you want withholding and inform the payer. See Revoking a choice not to have tax withheld , later.

The payer must withhold if either of the following applies.

You don’t give the payer your SSN in the required manner.

The IRS notifies the payer, before any payment or distribution is made, that you gave it an incorrect SSN.

 

If you don’t have any income tax withheld from your pension or annuity, or if you don’t have enough withheld, you may have to pay estimated tax. See chapter 2.

If you don’t pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty.

Payments delivered outside the United States.

You must generally have tax withheld from pension or annuity benefits delivered outside the United States. However, if you are a U.S. citizen or resident alien, you can choose not to have tax withheld if you give the payer of the benefits a home address in the United States or in a U.S. possession. The payer must withhold tax if you provide a U.S. address for a nominee, trustee, or agent to whom the benefits are to be delivered, but don’t provide your own home address in the United States or in a U.S. possession.

Notice required of payer.

The payer of your pension or annuity must send you a notice telling you about your right to choose not to have tax withheld.

Generally, the payer won’t send a notice to you if it is reasonable to believe that the entire amount you will be paid isn’t taxable.

Revoking a choice not to have tax withheld.

The payer of your pension or annuity will tell you how to revoke your choice not to have income tax withheld from periodic or nonperiodic payments. If you use Form W-4P to revoke the choice, enter “Revoked” by the checkbox on line 1 of the form. This will instruct the payer to withhold as if you were married and claiming three allowances. However, you can tell the payer exactly how much to withhold by completing line 2 of the form for periodic payments or line 3 for nonperiodic payments.

Income tax is withheld at a flat 24% rate from certain kinds of gambling winnings.

Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding.

Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or lottery.

Any other wager if the proceeds are at least 300 times the amount of the bet.

It does not matter whether your winnings are paid in cash, in property, or as an annuity. Winnings not paid in cash are taken into account at their fair market value.

Exception.

Gambling winnings from bingo, keno, and slot machines are generally not subject to income tax withholding. However, you may need to provide the payer with an SSN to avoid withholding. See Backup withholding on gambling winnings , later. If you receive gambling winnings not subject to withholding, you may need to pay estimated tax. See chapter 2.

If you don’t pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty.

Form W-2G.

If a payer withholds income tax from your gambling winnings, you should receive a Form W-2G, Certain Gambling Winnings, showing the amount you won and the amount withheld.

Report the tax withheld on your 2020 Form 1040 or 1040-SR, along with all other federal income tax withheld, as shown on Forms W-2 and 1099.

Information to give payer.

If the payer asks, you must give the payer all the following information.

Your name, address, and SSN.

Whether you made identical wagers (explained below).

Whether someone else is entitled to any part of the winnings subject to withholding. If so, you must complete Form 5754, Statement by Person(s) Receiving Gambling Winnings, and return it to the payer. The payer will use it to prepare a Form W-2G for each of the winners.

 

Identical wagers.

You may have to give the payer a statement of the amount of your winnings, if any, from identical wagers. If this statement is required, the payer will ask you for it. You provide this statement by signing Form W-2G or, if required, Form 5754.

Identical wagers include two bets placed in a pari-mutuel pool on one horse to win a particular race. However, the bets are not identical if one bet is “to win” and one bet is “to place.” In addition, they are not identical if the bets were placed in different pari-mutuel pools. For example, a bet in a pool conducted by the racetrack and a bet in a separate pool conducted by an offtrack betting establishment in which the bets are not pooled with those placed at the track are not identical wagers.

Backup withholding on gambling winnings.

If you have any kind of gambling winnings and don’t give the payer your SSN, the payer may have to withhold income tax at a flat 24% rate. This rule also applies to winnings of at least $1,200 from bingo or slot machines or $1,500 from keno, and to certain other gambling winnings of at least $600.

You can choose to have income tax withheld from unemployment compensation. To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer.

All unemployment compensation is taxable. So, if you don’t have income tax withheld, you may have to pay estimated tax. See chapter 2.

If you don’t pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty.

Form 1099-G.

If you receive $10 or more in unemployment compensation, you will receive a Form 1099-G, Certain Government Payments. Box 1 will show the amount of unemployment compensation you got for the year. Box 4 will show the amount of federal income tax withheld, if any.

You can choose to have income tax withheld from certain federal payments you receive. These payments are the following.

Social security benefits.

Tier 1 railroad retirement benefits.

Commodity credit corporation loans you choose to include in your gross income.

Payments under the Agricultural Act of 1949 (7 U.S.C. 1421 et seq.), as amended, or title II of the Disaster Assistance Act of 1988 that are treated as insurance proceeds and that you received because:

Your crops were destroyed or damaged by drought, flood, or any other natural disaster; or

You were unable to plant crops because of a natural disaster described
in (a).

Dividends and other distributions from Alaska Native Corporations to its shareholders.

Any other payment under federal law as determined by the Secretary.

 

To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer.

If you don’t choose to have income tax withheld, you may have to pay estimated tax. See chapter 2.

If you don’t pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty.

More information.

For more information about the tax treatment of social security and railroad retirement benefits, get Pub. 915, Social Security and Equivalent Railroad Retirement Benefits. Get Pub. 225, Farmer’s Tax Guide, for information about the tax treatment of commodity credit corporation loans or crop disaster payments.

Payment to shareholders of Alaska Native Corporations (ANCs).

If you are a shareholder of an ANC, you can request to have income tax withheld from dividends and other distributions you receive from the ANC. To make this request, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. A request for withholding isn’t effective until the ANC indicates in writing that it accepts the request or begins withholding. Contact the payer if it isn’t clear that the payer has accepted your Form W-4V.

If you don’t choose to have income tax withheld, or the ANC doesn’t accept your request, you may have to pay estimated tax. See chapter 2.

If you don’t pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty.

Banks or other businesses that pay you certain kinds of income must file an information return (Form 1099) with the IRS. The information return shows how much you were paid during the year. It also includes your name and taxpayer identification number (TIN). TINs are explained later in this discussion.

These payments are generally not subject to withholding. However, “backup” withholding is required in certain situations.

Payments subject to backup withholding.

Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include:

Interest payments (Form 1099-INT);

Government payments (Form 1099-G);

Dividends (Form 1099-DIV);

Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR);

Rents, profits, or other gains (Form 1099-MISC);

Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC);

Payments by brokers (Form 1099-B);

Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC); and

Royalty payments (Form 1099-MISC).

Backup withholding may also apply to gambling winnings. See Backup withholding on gambling winnings under Gambling Winnings, earlier.

Payments not subject to backup withholding.

Backup withholding does not apply to payments reported on Form 1099-MISC (other than payments by fishing boat operators and royalty payments) unless at least one of the following three situations applies.

The amount you receive from any one payer is $600 or more.

The payer had to give you a Form 1099 last year.

The payer made payments to you last year that were subject to backup withholding.

 

Form 1099 and backup withholding are generally not required for a payment of less than $10.

Withholding rules.

When you open a new account, make an investment, or begin to receive payments reported on Form 1099, the bank or other business will give you Form W-9, Request for Taxpayer Identification Number and Certification, or a similar form. You must enter your TIN on the form and, if your account or investment will earn interest or dividends, you must also certify (under penalties of perjury) that your TIN is correct and that you are not subject to backup withholding.

The payer must withhold at a flat 24% rate in the following situations.

You don’t give the payer your TIN in the required manner.

The IRS notifies the payer that the TIN you gave is incorrect.

You are required, but fail, to certify that you are not subject to backup withholding.

The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 210-day period.

 

Taxpayer identification number (TIN).

Your TIN is one of the following three numbers.

An SSN.

An employer identification number (EIN).

An IRS individual taxpayer identification number (ITIN). Aliens who don’t have an SSN and are not eligible to get one should get an ITIN. Use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN.

 

An ITIN is for federal tax use only. It does not entitle you to social security benefits or change your employment or immigration status under U.S. law. For more information on ITINs, get Pub. 1915, Understanding Your IRS Individual Taxpayer Identification Number.

If you were assigned an ITIN before January 1, 2013, or if you have an ITIN that you haven’t included on a tax return in the last 3 consecutive years, you may need to renew it. For more information, see the Instructions for Form W-7.

How to prevent or stop backup withholding.

If you have been notified by a payer that the TIN you gave is incorrect, you can usually prevent backup withholding from starting or stop backup withholding once it has begun by giving the payer your correct name and TIN. You must certify that the TIN you give is correct.

However, the payer will provide additional instructions if the TIN you gave needs to be validated by the Social Security Administration or by the IRS. This may happen if both the following conditions exist.

The IRS notifies the payer twice within 3 calendar years that a TIN you gave for the same account is incorrect.

The incorrect TIN is still being used on the account when the payer receives the second notice.

 

Underreported interest or dividends.

If you have been notified that you underreported interest or dividends, you must request and receive a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. Your request must show that at least one of the following situations applies.

No underreporting occurred.

You have a bona fide dispute with the IRS about whether an underreporting occurred.

Backup withholding will cause or is causing an undue hardship and it is unlikely that you will underreport interest and dividends in the future.

You have corrected the underreporting by filing an original return if you didn’t previously file one, or by filing an amended return, and by paying all taxes, penalties, and interest due for any underreported interest or dividend payments.

 

If the IRS determines that backup withholding should stop, it will provide you with certification and will notify the payers who were sent notices earlier.

Penalties.

There are civil and criminal penalties for giving false information to avoid backup withholding. The civil penalty is $500. The criminal penalty, upon conviction, is a fine of up to $1,000 or imprisonment of up to 1 year, or both.

 

Worksheets for Chapter 1

 

 

 

 

 

 

 

 

 

 

 

 

 

If your filing status was “Single” or “Married, but withhold at higher Single rate,” check “Single.”

If your filing status was “Married,” check “Married filing jointly.”

If your filing status was “Single” or “Married, but withhold at higher Single rate,” enter $8,600 (the equivalent of 2 allowances) on Step 4(a).

If your filing status was “Married,” enter $12,900 (the equivalent of 3 allowances on Step 4(a).

If there was an entry on line 5 (number of allowances), multiply each claimed allowance by $4,300 and enter the result on Step 4(b).

If there is an amount on line 6, add it to the amount on line 6 of Worksheet 1-5 above, and enter the result on Step 4(c).

 

 

 

If your filing status was “Single” or “Married, but withhold at higher Single rate,” check “Single.”

If your filing status was “Married,” check “Married filing jointly.”

If your filing status was “Single” or “Married, but withhold at higher Single rate,” enter $8,600 (the equivalent of 2 allowances) on Step 4(a).

If your filing status was “Married,” enter $12,900 (the equivalent of 3 allowances) on Step 4(a).

If there was an entry on line 5 (number of allowances), multiply each claimed allowance by $4,300 and enter the result on Step 4(b).

If there was an amount on line 6, add it to the amount on Step 4(c).

 

 

 

Complete your new 2020 Form W-4 through Step 4(b) in the same way you completed your previous Form W-4.

Add the amount, if any, on Step 4(c) of your previous Form W-4 to the amount on line 6 of Worksheet 1-5 above and enter the result on Step 4(c) of your new Form W-4.

Complete Steps 1, 2(c), 4(a), 4(b), and 4(c) in the same way as you completed your previous Form W-4.

Add the amount, if any, on Step 3 of your previous Form W-4 to the product of line 6 of Worksheet 1-5 multiplied by the total number of paydays in 2020 and enter the result on Step 3 of your new Form W-4.

 

If you make a mid-year change to your withholding, you should complete and give to your employer a new Form W-4 in January. The later in the year you change your Form W-4, the more important it is that you submit a new form the following January.

 

 

$32,750 or less, enter $185

$32,751 to $72,400, enter $300

$72,401 or higher, enter $1,800

 

Estimated tax is the method used to pay tax on income that isn’t subject to withholding. This includes income from self-employment, interest, dividends, rent, gains from the sale of assets, prizes, and awards. You may also have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income isn’t 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 don’t pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. If you don’t pay enough by the due date of each payment period (see When To Pay Estimated Tax , later), you may be charged a penalty even if you are due a refund when you file your tax return. For information on when the penalty applies, see the Instructions for Form 2210.

It would be helpful for you to have a copy of your 2019 tax return and an estimate of your 2020 income nearby while reading this chapter. Also, keep in mind the items under What’s New for 2020, earlier.

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.

Form (and Instructions)

1040-ES Estimated Tax for Individuals

See How To Get Tax Help at the end of this publication 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 Worksheets for Chapter 2 to locate what you need.

If you receive salaries and wages, you may be able to avoid paying 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 don’t have to pay estimated tax for 2020 if you meet all three of the following conditions.

You had no tax liability for 2019.

You were a U.S. citizen or resident alien for the whole year.

Your 2019 tax year covered a 12-month period.

 

You had no tax liability for 2019 if your total tax (defined later under Total tax for 2019—line 12b ) was zero or you didn’t have to file an income tax return.

Figure 2-A: Do You Have To Pay Estimated Tax?

Figure 2-A. Do You Have To Pay Estimated Tax?

Summary: This is the flowchart used to determine if a taxpayer has to make estimated tax payments.

Start

This is the start of the flowchart.

Decision (1)

Will you owe $1000 or more for 2020 after subtracting income tax withholding and refundable credits (see Footnote 1) from your total tax? (Do not subtract any estimated tax payments.)

Footnote 1: Use the refundable credits shown on the 2020 Estimated Tax Worksheet, line 11b.

Decision (2)

Will your income tax withholding and refundable credits (see Footnote 1) be at least 90% (66 2/3% for farmers and fishermen) of the tax shown on your 2020 tax return?

Decision (3)

Will your income tax withholding and refundable credits* (see Footnote 1) be at least 100% (see Footnote 2) of the tax shown on your 2019 tax return? Note: Your 2019 return must have covered a 12-month period.

Footnote 2: 110% if less than two-thirds of your gross income for 2019 and 2020 is from farming or fishing and your 2019 adjusted gross income was more than $150,000 ($75,000 if your filing status for 2020 is married filing a separate return).

Process (a)

You are NOT required to pay estimated tax.

Process (b)

You MUST make estimated tax payment(s) by the required due date(s). See When To Pay Estimated Tax.

End

This is the end of the flowchart.

Please click here for the text description of the image.

 

If you owed additional tax for 2019, you may have to pay estimated tax for 2020.

You can use the following general rule as a guide during the year to see if you will have enough withholding, or should increase your withholding or make estimated tax payments.

In most cases, you must pay estimated tax for 2020 if both of the following apply.

You expect to owe at least $1,000 in tax for 2020, after subtracting your withholding and tax credits.

You expect your withholding and tax credits to be less than the smaller of:

90% of the tax to be shown on your 2020 tax return, or

100% of the tax shown on your 2019 tax return. Your 2019 tax return must cover all 12 months.

Note. The percentages in (2a) or (2b) just listed may be different if you are a farmer, fisherman, or higher-income taxpayer. See Special Rules , later.

If the result from using the general rule above suggests that you won’t have enough withholding, complete the 2020 Estimated Tax Worksheet for a more accurate calculation.

Figure 2-A takes you through the general rule. You may find this helpful in determining if you must pay estimated tax.

If all your income will be subject to income tax withholding, you probably don’t need to pay estimated tax.

Example 1.

Jane Smart uses Figure 2-A and the following information to figure whether she should pay estimated tax for 2020. She files Form 1040 as head of household, takes the standard deduction, and expects no refundable credits for 2020.

 

Jane’s answer to Figure 2-A, box 1, is YES; she expects to owe at least $1,000 for 2020 after subtracting her withholding from her expected total tax ($11,015 − $10,000 = $1,015). Her answer to box 2a is YES; she expects her income tax withholding ($10,000) to be at least 90% of the tax to be shown on her 2020 return ($11,015 × 90% (0.90) = $9,913.50). Jane does not need to pay estimated tax.

Example 2.

The facts are the same as in Example 1, except that Jane expects only $7,000 tax to be withheld in 2020. Because that is less than $9,913.50, her answer to box 2a is NO.

Jane’s answer to box 2b is also NO; she does not expect her income tax withholding ($7,000) to be at least 100% of the total tax shown on her 2019 return ($7,017). Jane must increase her withholding or pay estimated tax for 2020.

Example 3.

The facts are the same as in Example 2, except that the total tax shown on Jane’s 2019 return was $6,400. Because she expects to have more than $6,400 withheld in 2020 ($7,000), her answer to box 2b is YES. Jane does not need to pay estimated tax for 2020.

If you qualify to make joint estimated tax payments, apply the rules discussed here to your joint estimated income.

You and your spouse can make joint estimated tax payments even if you are not living together.

However, you and your spouse can’t make joint estimated tax payments if:

You are legally separated under a decree of divorce or separate maintenance,

You and your spouse have different tax years, or

Either spouse is a nonresident alien (unless that spouse elected to be treated as a resident alien for tax purposes). See Choosing Resident Alien Status in Pub. 519.

 

Individuals who are in registered domestic partnerships, civil unions, or other similar formal relationships that are not marriages under state law can’t make joint estimated tax payments. These individuals can take credit only for the estimated tax payments that he or she made.

If you and your spouse can’t make joint estimated tax payments, apply these rules to your separate estimated income.

Making joint or separate estimated tax payments won’t affect your choice of filing a joint tax return or separate returns for 2020.

2019 separate returns and 2020 joint return.

If you plan to file a joint return with your spouse for 2020, but you filed separate returns for 2019, your 2019 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.

2019 joint return and 2020 separate returns.

If you plan to file a separate return for 2020, but you filed a joint return for 2019, your 2019 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 2019 using the same filing status for 2020. Then, multiply the tax on the joint return by the following fraction.

 

 

Example.

Joe and Heather filed a joint return for 2019 showing taxable income of $48,500 and a tax of $5,435. Of the $48,500 taxable income, $40,100 was Joe’s and the rest was Heather’s. For 2020, they plan to file married filing separately. Joe figures his share of the tax on the 2019 joint return as follows.

 

There are special rules for farmers, fishermen, and certain higher income taxpayers.

If at least two-thirds of your gross income for 2019 or 2020 is from farming or fishing, substitute 66²/₃% for 90% in (2a) under General Rule , later.

Gross income.

Your gross income is all income you receive in the form of money, goods, property, and services that isn’t exempt from tax. To determine whether two-thirds of your gross income for 2019 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.

 

For 2019, gross income from farming is the total of the following amounts.

Schedule F (Form 1040 or 1040-SR), Profit or Loss From Farming, line 9.

Form 4835, Farm Rental Income and Expenses, line 7.

Your share of the gross farming income from a partnership, S corporation, estate or trust, from Schedule K-1 (Form 1065), Schedule K-1 (Form 1120-S), or Schedule K-1 (Form 1041).

Your gains from sales of draft, breeding, dairy, or sporting livestock shown on Form 4797, Sales of Business Property.

 

Wages you receive as a farm employee and wages you receive from a farm corporation are not gross income from farming.

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 or 1040-SR), 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 fishing income from a partnership, S corporation, estate or trust, from Schedule K-1 (Form 1065), Schedule K-1 (Form 1120S), or Schedule K-1 (Form 1041).

Certain taxable interest and punitive damage awards received in connection with the Exxon Valdez litigation.

Income for services normally performed in connection with fishing.

Services normally performed in connection with fishing include:

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.

 

If your AGI for 2019 was more than $150,000 ($75,000 if your filing status for 2020 is married filing a separate return), substitute 110% for 100% in (2b) under General Rule , later.

For 2019, AGI is the amount shown on Form 1040 or 1040-SR, line 8b.

This rule does not apply to farmers and fishermen.

Resident and nonresident aliens may also 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.

For more information about withholding, the substantial presence test, and Form 1040-ES (NR), see Pub. 519.

Estates and trusts must also 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 2 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.

To figure your estimated tax, you must figure your expected AGI, taxable income, taxes, deductions, and credits for the year.

When figuring your 2020 estimated tax, it may be helpful to use your income, deductions, and credits for 2019 as a starting point. Use your 2019 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. Some of these changes are discussed earlier under What’s New for 2020 . For information about these and other changes in the law, visit the IRS website at IRS.gov.

The instructions for Form 1040-ES include a worksheet to help you figure your estimated tax. Keep the worksheet for your records.

Use Worksheet 2-1 to help guide you through the information about completing the 2020 Estimated Tax Worksheet. You can also find a copy of the worksheet in the instructions for Form 1040-ES.

Your expected AGI for 2020 (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, don’t include income that is tax exempt.

Total income includes all income and loss for 2020 that, if you had received it in 2019, would have been included on your 2019 tax return in the total on line 7b of Form 1040 or 1040-SR.

Social security and railroad retirement benefits. If you expect to receive social security or tier 1 railroad retirement benefits during 2020, use Worksheet 2-2 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 2020 tax return.

Self-employed. If you expect to have income from self-employment, use Worksheet 2-3 to figure your expected self-employment tax and your allowable deduction for self-employment tax. Include the amount from Worksheet 2-3 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.

Reduce your expected AGI for 2020 (line 1) by either your expected itemized deductions or your standard deduction.

Itemized deductions—line 2a.

If you expect to claim itemized deductions on your 2020 tax return, enter the estimated amount on line 2a.

Itemized deductions are the deductions that can be claimed on Schedule A (Form 1040 or 1040-SR).

Standard deduction—line 2a.

If you expect to claim the standard deduction on your 2020 tax return, enter the amount on line 2a. Use Worksheet 2-4 to figure 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.

 

After you have figured your expected taxable income (line 3), follow the steps next to figure your expected taxes, credits, and total tax for 2020. Most people will have entries for only a few of these steps. However, you should check every step to be sure you don’t overlook anything.

Step 1.

Figure your expected income tax (line 4). Generally, you will use the 2020 Tax Rate Schedules to figure your expected income tax.

However, see below for situations where you must use a different method to figure 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 $2,200 of investment income.

Children under age 18 at the end of 2020.

The following children if their earned income isn’t more than half their support.

Children age 18 at the end of 2020.

Children who are full-time students at least age 19 but under age 24 at the end of 2020.

See Pub. 929, Tax Rules for Children and Dependents. Although the ages and dollar amounts in the publication may be different in the 2019 revision, this reference will give you basic information for figuring the tax.

Tax on net capital gain.

The regular income tax rates for individuals don’t 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 capital gain and qualified dividends. If the amount on line 1 includes a net capital gain or qualified dividends, use Worksheet 2-5 to figure your tax.

The tax rate on your capital gains and dividends will depend on your income.

Tax if excluding foreign earned income or excluding or deducting foreign housing. If you expect to claim the foreign earned income exclusion or the housing exclusion or deduction on Form 2555, use Worksheet 2-6 to figure your estimated tax.

Step 2.

Total your expected taxes (line 6). Include on line 6 the sum of the following.

Your tax on line 6.

Your expected alternative minimum tax (AMT) from Form 6251.

Your expected additional taxes from Form 8814, Parents’ Election To Report Child’s Interest and Dividends, and Form 4972, Tax on Lump-Sum Distributions.

Any recapture of education credits.

 

Step 3.

Subtract your expected credits (line 7). If you are using your 2019 return as a guide and filed Form 1040 or 1040-SR, your total credits for 2019 were shown on line 13b.

If your credits on line 7 are more than your taxes on line 6, enter -0- on line 8 and go to Step 4.

Step 4.

Add your expected self-employment tax (line 9). You should already have figured your self-employment tax (see Self-employed under Expected AGI—Line 1, earlier).

Step 5.

Add your expected other taxes (line 10).

Other taxes include the following. The total of these taxes are entered on line 10.

Additional tax on early distributions from:

An IRA or other qualified retirement plan,

A tax-sheltered annuity, or

A modified endowment contract entered into after June 20, 1988.

Household employment taxes 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 didn’t include household employment taxes when figuring your estimated tax.

Amounts written on Form 1040 or 1040-SR on the line for “other taxes” (Schedule 2 (Form 1040 or 1040-SR), line 8). But don’t include recapture of a federal mortgage subsidy; tax on excess golden parachute payments; look-back interest due under section 167(g) or 460(b) of the Internal Revenue Code; excise tax on insider stock compensation from an expatriated corporation; or uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance.

Repayment of the first-time homebuyer credit. See Form 5405.

Additional Medicare Tax. A 0.9% Additional Medicare Tax applies to your combined Medicare wages and self-employment income and/or your RRTA compensation that exceeds the amount listed in the following chart, based on your filing status.

 

 

Medicare wages and self-employment income are combined to determine if your income exceeds the threshold. A self-employment loss should not be considered for purposes of this tax. RRTA compensation should be separately compared to the threshold. Your employer is responsible for withholding the 0.9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in 2020. You should consider this withholding, if applicable, in determining whether you need to make an estimated payment.

Net Investment Income Tax (NIIT). The NIIT is 3.8% of the lesser of your net investment income or the excess of your MAGI over the amount listed in the following chart, based on your filing status.

 

 

 

Step 6.

Subtract your refundable credits (line 11c). These include the earned income credit, additional child tax credit, fuel tax credit, net premium tax credit, refundable American opportunity credit, and refundable amount from Form 8885.

To figure your expected fuel tax credit, don’t include fuel tax for the first 3 quarters of the year that you expect to have refunded to you.

The result of Steps 1 through 6 is your total estimated tax for 2020 (line 11c).

On lines 12a through 12c, figure the total amount you must pay for 2020, 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 2020, or

100% of the total tax shown on your 2019 return. Your 2019 tax return must cover all 12 months.

 

Special rules.

There are special rules for higher income taxpayers and for farmers and fishermen.

Higher-income taxpayers.

If your AGI for 2019 was more than $150,000 ($75,000 if your filing status for 2020 is married filing separately), substitute 110% for 100% in (2) above. This rule does not apply to farmers and fishermen.

For 2019, AGI is the amount shown on Form 1040 or 1040-SR, line 8b.

Example.

Jeremy Martin’s total tax on his 2019 return was $42,581, and his expected tax for 2020 is $71,253. His 2019 AGI was $180,000. Because Jeremy had more than $150,000 of AGI in 2019, he figures his required annual payment as follows. He determines that 90% of his expected tax for 2020 is $64,128 (90% (0.90) × $71,253). Next, he determines that 110% of the tax shown on his 2019 return is $46,839 (110% (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 2019 or 2020 is from farming or fishing, your required annual payment is the smaller of:

66²/₃% (0.6667) of your total tax for 2020, or

100% of the total tax shown on your 2019 return. (Your 2019 tax return must cover all 12 months.)

 

For definitions of “gross income from farming” and “gross income from fishing,” see Farmers and Fishermen , earlier, under Special Rules.

Total tax for 2019—line 12b.

Your 2019 total tax is the amount on line 16 reduced by the following.

Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 included on Schedule 2 (Form 1040 or 1040-SR), line 5.

The following amounts from Form 5329 included on Schedule 2 (Form 1040 or 1040-SR), line 6.

Any tax on excess contributions to an IRA, Archer MSA, Coverdell education savings account, health savings account, and ABLE account.

Any tax on excess accumulations in qualified retirement plans.

The following write-ins on Schedule 2 (Form 1040 or 1040-SR), line 8.

Excise tax on excess golden parachute payments (identified as “EPP”).

Excise tax on insider stock compensation from an expatriated corporation (identified as “ISC”).

Look-back interest due under section 167(g) (identified as “From Form 8866”).

Look-back interest due under section 460(b) (identified as “From Form 8697”).

Recapture of federal mortgage subsidy (identified as “FMSR”).

Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance (identified as “UT”).

Any refundable credit amounts on Form 1040 or 1040-SR, line 18a, b, or c, and Schedule 3 (Form 1040 or 1040-SR), lines 9 and 12, and credit from Form 8885 included on line 13.

 

Use lines 13 and 14a to figure the total estimated tax you may be required to pay for 2020. Subtract your expected withholding from your required annual payment (line 12c). You must usually pay this difference in four equal installments. See When To Pay Estimated Tax and How To Figure Each Payment , later.

You don’t have to pay estimated tax if:

Line 12c minus line 13 is zero or less, or

Line 11c minus line 13 is less than $1,000.

 

Withholding—line 13.

Your expected withholding for 2020 (line 13) includes the income tax you expect to be withheld from all sources (wages, pensions and annuities, etc.). It includes excess social security and tier 1 railroad retirement tax you expect to be withheld from your wages and compensation. For this purpose, you will have excess social security or tier 1 railroad retirement tax withholding for 2020 only if your wages and compensation from two or more employers are more than $137,700.

It also includes Additional Medicare Tax you expect to be withheld from your wages or compensation. Your employer is responsible for withholding the 0.9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000.

For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you don’t 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.

If a payment is mailed, the date of the U.S. postmark is considered the date of payment. The general payment periods and due dates for estimated tax payments are shown next. For exceptions to the dates listed, see Saturday, Sunday, holiday rule .

 

 

For estimated tax payments due on April 15, 2020, and June 15, 2020, the due date is automatically extended to July 15, 2020.

For more information, see Filing and Payment Deadlines Questions and Answers on IRS.gov.

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 day that isn’t a Saturday, Sunday, or a holiday. See Pub. 509 for a list of all legal holidays.

January payment.

If you file your 2020 Form 1040 or 1040-SR by February 1, 2021, and pay the rest of the tax you owe, you don’t need to make the payment due on January 15, 2021.

Example.

Janet Adams does not pay any estimated tax for 2020. She files her 2020 income tax return and pays the balance due shown on her return on January 26, 2021.

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, if required. Any penalty for not making those payments will be figured up to January 26, 2021.

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.

 

You don’t have to make the last payment listed above if you file your income tax return by the last day of the first month after the end of your fiscal year and pay all the tax you owe with your return.

You don’t have to make estimated tax payments until you have income on which you will owe income 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 have several options when paying estimated taxes. You can:

Apply an overpayment from the previous tax year,

Pay all your estimated tax by the due date of your first payment, or

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.

To avoid any estimated tax penalties, all installments must be paid by their due date and for the required amount.

No income subject to estimated tax during first period.

If you don’t 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 shows the general due dates for making installment payments when the due date does not fall on a Saturday, Sunday, or holiday.

 

Table 2-1. General Due Dates for Estimated Tax 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 , later.

If at least two-thirds of your gross income for 2019 or 2020 is from farming or fishing, you have only one payment due date for your 2020 estimated tax, January 15, 2021. The due dates for the first three payment periods, discussed under When To Pay Estimated Tax , earlier, don’t apply to you.

If you file your 2020 Form 1040 or 1040-SR by March 1, 2021, and pay all the tax you owe at that time, you don’t 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.

 

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 don’t 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 the Instructions for Form 2210.

If your first estimated tax payment is due April 15, 2020, you can figure your required payment for each period by dividing your annual estimated tax due (line 14a of the 2020 Estimated Tax Worksheet (Worksheet 2-1)) by 4. Enter this amount on line 15. However, use this method only if your income is basically the same throughout the year.

Even though some estimated tax payment due dates have been postponed or changed for 2020, you may still want to use the regular due dates to figure each required payment for each period.

Change in estimated tax.

After you make an estimated tax payment, changes in your income, adjustments, deductions, or credits 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 don’t 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 , later.

Amended estimated tax. If you refigure your estimated tax during the year, or if your first estimated tax payment is due after April 15, 2020, figure your required payment for each remaining payment period using Worksheet 2-10.

Example.

Early in 2020, 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 2-10.

If Mira’s estimated tax does not change again, her required estimated tax payment for the fourth payment period will be $1,025.

Underpayment penalty.

The penalty is figured separately for each payment period. If you figure your payments using the regular installment method and later refigure your payments because of an increase in income, you may be charged a penalty for underpayment of estimated tax for the period(s) before you changed your payments. To see how you may be able to avoid or reduce this penalty, see Schedule AI—Annualized Income Installment Method in the Instructions for Form 2210.

 

 

 

 

 

If you don’t 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 2020 Annualized Estimated Tax Worksheet (Worksheet 2-7).

You first must complete the 2020 Estimated Tax Worksheet (Worksheet 2-1) through line 14b.

Use the result you figure on line 32 of Worksheet 2-7 to make your estimated tax payments and complete your payment vouchers.

If you use the annualized income installment method to figure your estimated tax payments, you must file Form 2210 with your 2020 tax return. See Schedule AI—Annualized Income Installment Method in the Instructions for Form 2210 for more information.

Use Worksheet 2-7 to help you follow these instructions.

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 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.

Line 1.

Enter your AGI for the period. This is your gross income for the period, including your share of partnership or S corporation income or loss, minus your adjustments to income for that period. See Expected AGI—Line 1 , earlier.

Self-employment income.

If you had self-employment income, first complete Section B of this worksheet. Use the amounts on line 41 when figuring your expected AGI to enter in each column of Section A, line 1.

Line 4.

Be sure to consider deduction limits figured on Schedule A (Form 1040 or 1040-SR), such as the $10,000 limit on state and local taxes. Figure your deduction limits using your expected AGI in the corresponding column of line 1 (2020 Annualized Estimated Tax Worksheet (Worksheet 2-7)).

Line 7.

If you won’t itemize your deductions, use Worksheet 2-4 to figure your standard deduction.

Line 12.

Generally, you will use the Tax Rate Schedules to figure the tax on your annualized income. However, see below for situations where you must use a different method to figure 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 $2,200 of investment income.

Children under age 18 at the end of 2020.

The following children if their earned income isn’t more than half their support.

Children age 18 at the end of 2020.

Children who are full-time students at least age 19 but under age 24 at the end of 2020.

See Pub. 929.

Tax on net capital gain.

The regular income tax rates for individuals don’t 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 and capital gains.

For 2020, your capital gain and dividends rate will depend on your income.

Tax on capital gain or qualified dividends. If the amount on line 1 includes a net capital gain or qualified dividends, use Worksheet 2-8 to figure the amount to enter on line 10.

Tax if excluding foreign earned income or excluding or deducting foreign housing. If you expect to claim the foreign earned income exclusion or the housing exclusion or deduction on Form 2555, use Worksheet 2-9 to figure the amount to enter on line 10.

Line 13.

Add the tax from Forms 8814, 4972, and 6251 for the period. Also, include any recapture of an education credit for each period. You may owe this tax if you claimed an education credit in an earlier year and you received either tax-free educational assistance or a refund of qualifying expenses for the same student after filing your 2019 return.

Use the 2019 forms or worksheets to see if you will owe any of the taxes just discussed. Figure the tax based on your income and deductions during the period shown in the column headings. Multiply this amount by the annualization amounts shown for each column on line 2 of the 2020 Annualized Estimated Tax Worksheet (Worksheet 2-7). Enter the result on line 13 of this worksheet.

Line 15.

Include all the nonrefundable credits you expect to claim because of events that will occur during the period.

When figuring your credits for each period, annualize any item of income or deduction to figure each credit. For example, if you need to use your AGI to figure a credit, use line 3 of Worksheet 2-7 to figure the credit for each column.

Line 18.

Add your expected other taxes.

Other taxes include the following.

Additional tax on early distributions from:

An IRA or other qualified retirement plan,

A tax-sheltered annuity, or

A modified endowment contract entered into after June 20, 1988.

Household employment taxes 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 didn’t include household employment taxes when figuring your estimated tax.

Amounts on Form 1040 or 1040-SR written on the line for “other taxes” (Schedule 2 (Form 1040 or 1040-SR), line 8). But don’t include recapture of a federal mortgage subsidy; tax on excess golden parachute payments; look-back interest due under section 167(g) or 460(b) of the Internal Revenue Code; excise tax on insider stock compensation from an expatriated corporation; and uncollected social security, Medicare, or RRTA tax on tips or group-term life insurance.

Repayment of the first-time homebuyer credit if the home will cease to be your main home in 2020. See Form 5405 for exceptions.

Additional Medicare Tax. A 0.9% Additional Medicare Tax applies to your combined Medicare wages and self-employment income and/or your RRTA compensation that exceeds the amount listed in the following chart, based on your filing status.

 

 

Medicare wages and self-employment income are combined to determine if your income exceeds the threshold. A self-employment loss should not be considered for purposes of this tax. RRTA compensation should be separately compared to the threshold.

Your employer is responsible for withholding the 0.9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays you in excess of $200,000 in 2020. You should consider this withholding, if applicable, in determining whether you need to make an estimated payment.

Net Investment Income Tax (NIIT). The NIIT is 3.8% of the lesser of your net investment income or the excess of your MAGI over a specified threshold amount. Threshold amounts:

 

 

 

Line 20.

Include all the refundable credits (other than withholding credits) you can claim because of events that occurred during the period. These include the earned income credit, additional child tax credit, fuel tax credit, net premium tax credit, any refundable credit from Form 8885, and refundable American opportunity credit.

When figuring your refundable credits for each period, annualize any item of income or deduction used to figure each credit.

Line 29.

If line 28 is smaller than line 25 and you are not certain of the estimate of your 2020 tax, you can avoid a penalty by entering the amount from line 25 on line 29.

Line 31.

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 31 for each period, multiply your total expected withholding for 2020 by:

25% (0.25) for the first period,

50% (0.50) for the second period,

75% (0.75) for the third period, and

100% (1.00) for the fourth period.

 

However, you may choose to include your withholding according to the actual dates on which the amounts will be withheld. For each period, include withholding made from the beginning of the period up to and including the payment due date. You can make this choice separately for the taxes withheld from your wages and all other withholding. For an explanation of what to include in withholding, see Total Estimated Tax Payments Needed—Line 14a , earlier.

Nonresident aliens.

If you will file Form 1040-NR and you don’t 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 21, increase your entry by the amount determined by multiplying your income for the period that isn’t effectively connected with a U.S. trade or business by the following.

72% (0.72) for column (b).

45% (0.45) for column (c).

30% (0.30) 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 26, enter one-half of the amount from line 14c of the Form 1040-ES (NR) 2020 Estimated Tax Worksheet in column (b), and one-fourth in columns (c) and (d) of Worksheet 2-7.

On lines 24 and 27, skip column (b).

On line 31, if you don’t use the actual withholding method, include one-half of your total expected withholding in column (b) and one-fourth in columns (c) and (d).

See Pub. 519 for more information.

You don’t 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 don’t 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.

There are several ways to pay estimated tax.

Credit an overpayment on your 2019 return to your 2020 estimated tax.

Pay by direct transfer from your bank account, or pay by debit or credit card using a pay-by-phone system or the Internet.

Send in your payment (check or money order) with a payment voucher from Form 1040-ES.

 

If you show an overpayment of tax after completing your Form 1040 or 1040-SR for 2019, you can apply part or all of it to your estimated tax for 2020. On Form 1040 or 1040-SR, enter the amount you want credited to your estimated tax rather than refunded. Take the amount you have credited into account when figuring your estimated tax payments. If you timely file your 2019 return, treat the credit as a payment made on April 15, 2020.

If you are a beneficiary of an estate or trust, and the trustee elects to credit 2020 trust payments of estimated tax to you, you can treat the amount credited as paid by you on January 15, 2021.

If you choose to have an overpayment of tax credited to your estimated tax, you can’t have any of that amount refunded to you until you file your tax return for the following year. You also can’t use that overpayment in any other way.

Example.

When Kathleen finished filling out her 2019 tax return, she saw that she had overpaid her taxes by $750. Kathleen knew she would owe additional tax in 2020. She credited $600 of the overpayment to her 2020 estimated tax and had the remaining $150 refunded to her.

In September, she amended her 2019 return by filing Form 1040-X, Amended U.S. Individual Income Tax Return. It turned out that she owed $250 more in tax than she had thought. This reduced her 2019 overpayment from $750 to $500. Because the $750 had already been applied to her 2020 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 2020 estimated tax to pay this bill.

IRS offers an electronic payment option that is right for you. Paying online is convenient and secure and helps make sure we get your payments on time. To pay your taxes online or for more information, go to IRS.gov/Payments. You can pay using any of the following methods.

IRS Direct Pay. For online transfers directly from your checking or savings account at no cost to you, go to IRS.gov/Payments.

Pay by Card. To pay by debit or credit card, go to IRS.gov/Payments. There is a convenience fee charged by these service providers.

Electronic Funds Withdrawal (EFW) is an integrated e-file/e-pay option offered when filing your federal taxes electronically using tax preparation software, through a tax professional, or the IRS at IRS.gov/Payments.

Online Payment Agreement. If you can’t pay in full by the due date of your tax return, you can apply for an online monthly installment agreement at IRS.gov/OPA. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved. A user fee is charged.

IRS2Go is the mobile application of the IRS; you can access Direct Pay or Pay by Card by downloading the application.

 

Paying by phone is another safe and secure method of paying electronically. Use one of the following methods: (1) call one of the debit or credit card service providers, or (2) use the Electronic Federal Tax Payment System (EFTPS).

Debit or credit card.

Call one of our service providers. Each charges a fee that varies by provider, card type, and payment amount.

 

 

 

EFTPS.

To use EFTPS, you must be enrolled either online or have an enrollment form mailed to you. To make a payment using EFTPS, call 800-555-4477 (English) or 800-244-4829 (Español). People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 800-733-4829. For more information about EFTPS, go to IRS.gov/Payments or EFTPS.gov.

To pay through your mobile device, download the IRS2Go application.

Cash is an in-person payment option for individuals provided through retail partners with a maximum of $1,000 per day per transaction. To make a cash payment, you must first be registered online at www.officialpayments.com/fed, our Official Payment provider.

Before submitting a payment through the mail, please consider alternative methods. One of our safe, quick, and easy electronic payment options might be right for you. Each payment of estimated tax by check or money order must be accompanied by a payment voucher from Form 1040-ES. If you use your own envelopes (and not the window envelope that comes with the 1040-ES package), make sure you mail your payment vouchers to the address shown in the Form 1040-ES instructions for the place where you live.

Don’t use the address shown in the Instructions for Forms 1040 and 1040-SR.

If you didn’t pay estimated tax last year, get a copy of Form 1040-ES from the IRS (see How To Get Tax Help , later). Follow the instructions to make sure you use the vouchers correctly.

Notice to taxpayers presenting checks.

When you provide a check as payment, you authorize us either to use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction. When we use information from your check to make an electronic fund transfer, funds may be withdrawn from your account as soon as the same day we receive your payment, and you will not receive your check back from your financial institution.

No checks of $100 million or more accepted.

The IRS can’t accept a single check (including a cashier’s check) for amounts of $100,000,000 ($100 million) or more. If you are sending $100 million or more by check, you’ll need to spread the payment over two or more checks with each check made out for an amount less than $100 million. This limit doesn’t apply to other methods of payment (such as electronic payments). Please consider a method of payment other than check if the amount of the payment is over $100 million.

Joint estimated tax payments.

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. Complete Form 8822, Change of Address, and mail it to the address shown in the instructions for that form.

 

 

 

 

 

 

 

 

If you plan to itemize deductions, enter the estimated total of your itemized deductions.

If you don’t plan to itemize deductions, enter your standard deduction

 

U.S. savings bond interest used for higher education expenses (Form 8815)

Employer-provided adoption benefits (Form 8839)

Foreign earned income or housing (Form 2555)

Income by bona fide residents of American Samoa (Form 4563) or Puerto Rico

If you do not choose to defer payment of your self-employment tax for 2020 until 2021 and 2022, enter the result here and on line 9 of your 2020 Estimated Tax Worksheet (Worksheet 2-1) (or line 15 of the Annualized Estimated Tax Worksheet (Worksheet 2-7)). Complete line 11 and skip lines 12a, 12b, and 13.

If you choose to defer payment of your self-employment tax for 2020 until 2021 and 2022, enter the result here, then complete line 11 and go to line 12a.

Line 3 of your 2020 Estimated Tax Worksheet.

Line 3 of Worksheet 2-6 (use if you will exclude or deduct foreign earned income or housing)

$163,300 if single or married filing separately;

$163,300 if head of household; or

$326,600 if married filing jointly or qualifying widow(er)

$441,450 if single,

$248,300 if married filing separately,

$496,600 if married filing jointly or qualifying widow(er), or

$469,050 if head of household

 

 

 

Line 11 of your 2020 Annualized Estimated Tax Worksheet
(Worksheet 2-7).

Line 3 of Worksheet 2-9 (use if you will exclude or deduct foreign earned income or housing)

$163,300 if single or married filing separately;

$163,300 if head of household; or

$326,600 if married filing jointly or qualifying widow(er)

$441,450 if single,

$248,300 if married filing separately,

$496,600 if married filing jointly or qualifying widow(er), or

$469,050 if head of household

If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.

Preparing and filing your tax return.

After receiving your wage and earning statements (Form W-2, W-2G, 1099-R, 1099-MISC) from all employers and interest and dividend statements from banks (Forms 1099), you can find free options to prepare and file your return on IRS.gov or in your local community if you qualify.

The Volunteer Income Tax Assistance (VITA) program offers free tax help to people with low-to-moderate incomes, persons with disabilities, and limited-English-speaking taxpayers who need help preparing their own tax returns. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.

You can go to IRS.gov to see your options for preparing and filing your return, which include the following.

 

Free File. Go to IRS.gov/FreeFile to see if you qualify to use brand-name software to prepare and e-file your federal tax return for free.

VITA. Go to IRS.gov/VITA, download the free IRS2Go app, or call 800-906-9887 to find the nearest VITA location for free tax return preparation.

TCE. Go to IRS.gov/TCE, download the free IRS2Go app, or call 888-227-7669 to find the nearest TCE location for free tax return preparation.

 

Employers can register to use Business Services Online.

The SSA offers online service for fast, free, and secure online W-2 filing options to CPAs, accountants, enrolled agents, and individuals who process Forms W-2, Wage and Tax Statement, and Forms W-2c, Corrected Income and Tax Statement. Employers can go to SSA.gov/employer for more information.

Getting answers to your tax questions. On IRS.gov, get answers to your tax questions anytime, anywhere.

Go to IRS.gov/Help for a variety of tools that will help you get answers to some of the most common tax questions.

Go to IRS.gov/ITA for the Interactive Tax Assistant, a tool that will ask you questions on a number of tax law topics and provide answers. You can print the entire interview and the final response for your records.

Go to IRS.gov/Forms to search for our forms, instructions, and publications. You will find details on 2019 tax changes and hundreds of interactive links to help you find answers to your questions.

You may also be able to access tax law information in your electronic filing software.

 

Tax reform.

Tax reform legislation affects individuals, businesses, and tax-exempt and government entities. Go to IRS.gov/TaxReform for information and updates on how this legislation affects your taxes.

IRS social media.

Go to IRS.gov/SocialMedia to see the various social media tools the IRS uses to share the latest information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are paramount. We use these tools to share public information with you. Don’t post your social security number or other confidential information on social media sites. Always protect your identity when using any social networking site.

The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, Spanish, and ASL.

Youtube.com/irsvideos.

Youtube.com/irsvideosmultilingua.

Youtube.com/irsvideosASL.

 

Watching IRS videos.

The IRS Video portal (IRSVideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals.

Getting tax information in other languages.

For taxpayers whose native language isn’t English, we have the following resources available. Taxpayers can find information on IRS.gov in the following languages.

Spanish (IRS.gov/Spanish).

Chinese (IRS.gov/Chinese).

Korean (IRS.gov/Korean).

Russian (IRS.gov/Russian).

Vietnamese (IRS.gov/Vietnamese).

 

The IRS Taxpayer Assistance Centers (TACs) provide over-the-phone interpreter service in over 170 languages, and the service is available free to taxpayers.

Getting tax forms and publications.

Go to IRS.gov/Forms to view, download, or print all of the forms, instructions, and publications you may need. You can also download and view popular tax publications and instructions (including the 1040 and 1040-SR instructions) on mobile devices as an eBook at no charge at IRS.gov/eBooks. Or you can go to IRS.gov/OrderForms to place an order and have them mailed to you within 10 business days.

Access your online account (individual taxpayers only).

Go to IRS.gov/Account to securely access information about your federal tax account.

View the amount you owe, pay online, or set up an online payment agreement.

Access your tax records online.

Review the past 24 months of your payment history.

Go to IRS.gov/SecureAccess to review the required identity authentication process.

 

Using direct deposit.

The fastest way to receive a tax refund is to combine direct deposit and IRS e-file. Direct deposit securely and electronically transfers your refund directly into your financial account. Eight in 10 taxpayers use direct deposit to receive their refund. The IRS issues more than 90% of refunds in less than 21 days.

Getting a transcript or copy of a return.

The quickest way to get a copy of your tax transcript is to go to IRS.gov/Transcripts. Click on either “Get Transcript Online” or “Get Transcript by Mail” to order a copy of your transcript. If you prefer, you can order your transcript by calling 800-908-9946.

Using online tools to help prepare your return.

Go to IRS.gov/Tools for the following.

The Earned Income Tax Credit Assistant (IRS.gov/EITCAssistant) determines if you’re eligible for the EIC.

The Online EIN Application (IRS.gov/EIN) helps you get an employer identification number.

The Tax Withholding Estimator (IRS.gov/W4app) makes it easier for everyone to pay the correct amount of tax during the year. The Estimator replaces the Withholding Calculator. The redesigned tool is a convenient, online way to check and tailor your withholding. It’s more user-friendly for taxpayers, including retirees and self-employed individuals. The new and improved features include the following.

Easy to understand language;

The ability to switch between screens, correct previous entries, and skip screens that don’t apply;

Tips and links to help you determine if you qualify for tax credits and deductions;

A progress tracker;

A self-employment tax feature; and

Automatic calculation of taxable social security benefits.

 

The First Time Homebuyer Credit Account Look-up (IRS.gov/HomeBuyer) tool provides information on your repayments and account balance.

The Sales Tax Deduction Calculator (IRS.gov/SalesTax) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040 or 1040-SR), choose not to claim state and local income taxes, and you didn’t save your receipts showing the sales tax you paid.

 

Resolving tax-related identity theft issues.

 

The IRS doesn’t initiate contact with taxpayers by email or telephone to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

Go to IRS.gov/IDProtection for information.

If your SSN has been lost or stolen or you suspect you’re a victim of tax-related identity theft, visit IRS.gov/IdentityTheft to learn what steps you should take.

 

Checking on the status of your refund.

 

Go to IRS.gov/Refunds.

The IRS can’t issue refunds before mid-February 2020 for returns that claimed the EIC or the ACTC. This applies to the entire refund, not just the portion associated with these credits.

Download the official IRS2Go app to your mobile device to check your refund status.

Call the automated refund hotline at 800-829-1954.

 

Making a tax payment.

The IRS uses the latest encryption technology to ensure your electronic payments are safe and secure. You can make electronic payments online, by phone, and from a mobile device using the IRS2Go app. Paying electronically is quick, easy, and faster than mailing in a check or money order. Go to IRS.gov/Payments to make a payment using any of the following options.

IRS Direct Pay: Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.

Debit or Credit Card: Choose an approved payment processor to pay online, by phone, and by mobile device.

Electronic Funds Withdrawal: Offered only when filing your federal taxes using tax return preparation software or through a tax professional.

Electronic Federal Tax Payment System: Best option for businesses. Enrollment is required.

Check or Money Order: Mail your payment to the address listed on the notice or instructions.

Cash: You may be able to pay your taxes with cash at a participating retail store.

Same-Day Wire: You may be able to do same-day wire from your financial institution. Contact your financial institution for availability, cost, and cut-off times.

 

What if I can’t pay now?

Go to IRS.gov/Payments for more information about your options.

Apply for an online payment agreement (IRS.gov/OPA) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved.

Use the Offer in Compromise Pre-Qualifier to see if you can settle your tax debt for less than the full amount you owe. For more information on the Offer in Compromise program, go to IRS.gov/OIC.

 

Checking the status of an amended return.

Go to IRS.gov/WMAR to track the status of Form 1040-X amended returns. Please note that it can take up to 3 weeks from the date you mailed your amended return for it to show up in our system, and processing it can take up to 16 weeks.

Understanding an IRS notice or letter.

Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter.

Contacting your local IRS office.

Keep in mind, many questions can be answered on IRS.gov without visiting an IRS Tax Assistance Center (TAC). Go to IRS.gov/LetUsHelp for the topics people ask about most. If you still need help, IRS TACs provide tax help when a tax issue can’t be handled online or by phone. All TACs now provide service by appointment so you’ll know in advance that you can get the service you need without long wait times. Before you visit, go to IRS.gov/TACLocator to find the nearest TAC, check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on “Local Offices.”

TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Their job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Go to TaxpayerAdvocate.IRS.gov to help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

TAS can help you resolve problems that you can’t resolve with the IRS. And their service is free. If you qualify for their assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

Your problem is causing financial difficulty for you, your family, or your business;

You face (or your business is facing) an immediate threat of adverse action; or

You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.

 

TAS has offices in every state, the District of Columbia, and Puerto Rico. Your local advocate’s number is in your local directory and at TaxpayerAdvocate.IRS.gov/Contact-Us. You can also call them at 877-777-4778.

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to them at IRS.gov/SAMS.

TAS also has a website, Tax Reform Changes, which shows you how the new tax law may change your future tax filings and helps you plan for these changes. The information is categorized by tax topic in the order of the IRS Form 1040 or 1040-SR. Go to TaxChanges.us for more information.

TAS can provide a variety of information for tax professionals, including tax law updates and guidance, TAS programs, and ways to let TAS know about systemic problems you’ve seen in your practice.

LITCs are independent from the IRS. LITCs represent individuals whose income is below a certain level and need to resolve tax problems with the IRS, such as audits, appeals, and tax collection disputes. In addition, clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. To find a clinic near you, visit IRS.gov/LITC or see IRS Pub. 4134, Low Income Taxpayer Clinic List.

Research & References of Publication 505 (2020), Tax Withholding and Estimated Tax|A&C Accounting And Tax Services
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