How To Figure 
Estimated Tax(p19)

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

When figuring your 2011 estimated tax, it may be helpful to use your income, deductions, and credits for 2010 as a starting point. Use your 2010 federal tax return as a guide. You can use Form 1040-ES to figure your estimated tax. Nonresident aliens use Form 1040-ES (NR) to figure estimated tax.

You must make adjustments both for changes in your own situation and for recent changes in the tax law. For 2011, there are several changes in the law. Some of these changes are discussed under What's New for 2011 beginning on page 2. 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 the worksheet Figure 2-B on page 20 to help guide you through the information about completing the 2011 Estimated Tax Worksheet. You also will find a blank worksheet on page 33.

Your expected AGI for 2011 (line 1) is your expected total income minus your expected adjustments to income.

Include in your total income all the income you expect to receive during the year, even income that is subject to withholding. However, do not include income that is tax exempt.

Total income includes all income and loss for 2011 that, if you had received it in 2010, would have been included on your 2010 tax return in the total on line 22 of Form 1040, line 15 of Form 1040A, or line 4 of Form 1040EZ.

Be sure to subtract from your expected total income all of the adjustments you expect to take on your 2011 tax return. If you are using your 2010 return as a guide and filed Form 1040, your adjustments for 2010 were on lines 23 through 35, plus any write-in adjustments on line 36. If you filed Form 1040A, your 2010 adjustments were on lines 16 through 19.

Reduce your expected AGI for 2011 (line 1) by either your expected itemized deductions or your standard deduction and by your exemptions (lines 2 through 5).

If you expect to claim itemized deductions on your 2011 tax return, enter the estimated amount on line 2.

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

If you expect to claim the standard deduction on your 2011 tax return, enter the amount on line 2. Use Worksheet 2-3 on page 37 to figure your 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 subtracted either your expected itemized deductions or your standard deduction from your expected AGI, reduce the amount remaining by $3,700 for each exemption you expect to take on your 2011 tax return. If another person (such as your parent) can claim an exemption for you on his or her tax return, you cannot claim your own personal exemption. This is true even if the other person will not claim your exemption.

After you have figured your expected taxable income (line 5), follow the steps below to figure your expected taxes, credits, and total tax for 2011. Most people will have entries for only a few of these steps. However, you should check every step to be sure you do not overlook anything.

Figure your expected income tax (line 6). Generally, you will use the 2011 Tax Rate Schedules, found on page 34 or in the instructions to Form 1040-ES, to figure your expected income tax.

If line 5 is $35,000 and your filing status is single, you would use Schedule X of the 2011 Tax Rate Schedules. Your income is over $34,500 but less than $83,600. Subtract $34,500 from $35,000. Multiply $500 ($35,000 – 34,500) by 25% (500 × .25 = $125). Add $125 to $4,750. Enter $4,875 on line 6.

However, see below for situations where you must use a different method to compute your estimated tax.

You must use a special method to figure tax on the income of the following children who have more than $1,900 of investment income.

1. Children under age 18 at the end of 2011.
2. The following children if their earned income is not more than half their support.
   1. Children age 18 at the end of 2011.
   2. Children who are full-time students over age 18 and under age 24 at the end of 2011.

See Publication 929, Tax Rules for Children and Dependents. Although the ages and dollar amounts in the publication may be different in the 2011 revision, this reference will give you basic information for figuring the tax.

The regular income tax rates for individuals do not apply to a net capital gain. Instead, your net capital gain is taxed at a lower maximum rate.

The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.

Generally, the maximum tax rate for qualified dividends is 15% (0% for people whose other income is taxed at the 10% or 15% rate).

Total your expected taxes (line 8). Include on line 8 the sum of the following.

1. Your tax on line 6.
2. Your expected alternative minimum tax (AMT) on line 7 from Form 6251, line 35, or included on Form 1040A, line 28.
3. Your expected additional taxes from Form 8814, Parents' Election To Report Child's Interest and Dividends, and Form 4972, Tax on Lump-Sum Distributions.
4. Any recapture of education credits.

Subtract your expected credits (line 9). If you are using your 2010 return as a guide and filed Form 1040, your total credits for 2010 were shown on line 54. If you filed Form 1040A, your total credits for 2010 were on line 34.

If your credits on line 9 are more than your taxes on line 8, enter "-0-" on line 10 and go to Step 4.

Add your expected self-employment tax (line 11). You already should have figured your self-employment tax (see Self-employed under Expected AGI—Line 1 on page 19).

Add your expected other taxes (line 12).

Other taxes include the following.

1. Additional tax on early distributions from:
   1. An IRA or other qualified retirement plan,
   2. A tax-sheltered annuity, or
   3. A modified endowment contract entered into after June 20, 1988.
2. Household employment taxes if:
   1. You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income, or
   2. You would be required to make estimated tax payments even if you did not include household employment taxes when figuring your estimated tax.
3. Amounts written in on Form 1040 on the line for "total tax" (line 60 on the 2010 Form 1040). But, do not 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; uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance; or additional tax on advance payments of health coverage tax credit when not eligible.
4. Repayment of the first-time homebuyer credit. See Form 5405.

Subtract your refundable credits (line 13b). These include your expected earned income credit, Form 8812 additional child tax credit, Form 8863 refundable American opportunity credit, Form 4136 fuel tax credit, Form 5405 first-time homebuyer credit, Form 8839 adoption credit, Form 8801 refundable credit for prior year minimum tax, and Form 8885 health coverage tax credit. These are shown on the 2010 Form 1040, lines 64a, 65, 66, 67, 70, and 71 (boxes b, c, and d).

To figure your expected fuel tax credit, do not include fuel tax for the first three quarters of the year that you expect to have refunded to you.

If you filed Form 1040A in 2010, the credits (earned income credit, additional child tax credit, and refundable American opportunity credit) were shown on lines 41a, 42, and 43.

The result of steps 1 through 6 is your total estimated tax for 2011 (line 13c).

On lines 14a through 14c, figure the total amount you must pay for 2011, through withholding and estimated tax payments, to avoid paying a penalty.

The total amount you must pay is the smaller of:

1. 90% of your total expected tax for 2011, or
2. 100% of the total tax shown on your 2010 return. Your 2010 tax return must cover all 12 months.

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

If your AGI for 2010 was more than $150,000 ($75,000 if your filing status for 2011 is married filing separately), substitute 110% for 100% in (2) above. This rule does not apply to farmers and fishermen.

For 2010, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4.

Jeremy Martin's total tax on his 2010 return was $42,581, and his expected tax for 2011 is $71,253. His 2010 AGI was $180,000. Because Jeremy had more than $150,000 of AGI in 2010, he figures his required annual payment as follows. He determines that 90% of his expected tax for 2011 is $64,128 (.90 × $71,253). Next, he determines that 110% of the tax shown on his 2010 return is $46,839 (1.10 x $42,581). Finally, he determines that his required annual payment is $46,839, the smaller of the two.

If at least two-thirds of your gross income for 2010 or 2011 is from farming or fishing, your required annual payment is the smaller of:

1. 662/3% (.6667) of your total tax for 2011, or
2. 100% of the total tax shown on your 2010 return. (Your 2010 tax return must cover all 12 months.)

For definitions of "gross income from farming" and "gross income from fishing," see Farmers and Fishermen, under Special Rules discussed on page 18.

Your 2010 total tax, if you filed Form 1040, is the amount on line 60 reduced by the following.

1. Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57).
2. The following amounts from Form 5329 included on line 58.
   1. Any tax on excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts.
   2. Any tax on excess accumulations in qualified retirement plans.
3. The following write-ins on line 60.
   1. Excise tax on excess golden parachute payments (identified as "EPP").
   2. Excise tax on insider stock compensation from an expatriated corporation (identified as "ISC").
   3. Look-back interest due under section 167(g) (identified as "From Form 8866").
   4. Look-back interest due under section 460(b) (identified as "From Form 8697").
   5. Recapture of federal mortgage subsidy (identified as "FMSR").
   6. Additional tax on advance payments of health coverage tax credit when not eligible (identified as "HCTC").
   7. Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance (identified as "UT").
4. Any refundable credit amounts listed on lines 63, 64a, 65, 66, 67, 70, and 71 (boxes b, c, and d).

If you filed Form 1040A, your 2010 total tax is the amount on line 37 reduced by any refundable credits on lines 40, 41a, 42, and 43.

If you filed Form 1040EZ, your 2010 total tax is the amount on line 11 reduced by the amount on lines 8 and 9a.

Use lines 15 and 16a to figure the total estimated tax you may be required to pay for 2011. Subtract your expected withholding from your required annual payment (line 14c). You usually must pay this difference in four equal installments. See When To Pay Estimated Tax and How To Figure Each Payment on this page.

You do not have to pay estimated tax if:

• Line 14c minus line 15 is zero or less, or
• Line 13c minus line 15 is less than $1,000.

Your expected withholding for 2011 (line 15) includes the income tax you expect to be withheld from all sources (wages, pensions and annuities, etc.). It also includes excess social security and railroad retirement tax you expect to be withheld from your wages.

For this purpose, you will have excess social security or tier 1 railroad retirement tax withholding for 2011 only if your wages from two or more employers are more than $106,800. See Excess Social Security or Railroad Retirement Tax Withholding in chapter 3.