Publication 505 - Tax Withholding and Estimated Tax

Publication 505

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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 generally are not subject to withholding. However, "backup" withholding is required in certain situations.

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

Interest payments (Form 1099-INT),
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 also may apply to gambling winnings. See Backup withholding on gambling winnings under Gambling Winnings.

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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.

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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 also must 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 28% rate in the following situations.

You do not 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.

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Your TIN is one of the following three numbers.

A social security number (SSN).
An employer identification number (EIN).
An IRS individual taxpayer identification number (ITIN). Aliens who do not 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 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 Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number.

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If you have been notified by a payer that the TIN you gave is incorrect, you usually can 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.

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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 did not 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.

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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.

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Worksheets for Chapter 1

Use the following worksheets to figure your correct withholding and adjustments.

Use ...	To ...
Worksheet 1-1 Personal Allowances Worksheet (Form W-4) Reduction of Personal Allowances if AGI is above Phaseout Threshold	Figure your personal allowances if your adjusted gross income is over the stated threshold.
Worksheet 1-2 Deductions and Adjustments Worksheet (Forms W-4) —Line 1 Phaseout of Itemized Deductions	Figure your itemized deductions if your adjusted gross income is over the stated threshold.
Worksheet 1-3 and Worksheet 1-4 Exemption From Withholding for Persons/Dependents Age 65 or Older or Blind	Figure your total expected income for 2013 to determine if you are exempt from withholding. Use Worksheet 1-3, if in 2012, you had a right to a refund of all federal income tax withheld because of no tax liability. Use Worksheet 1-4, if you are a dependent for 2013, and for 2012, you had a refund of all federal income tax withheld because of no tax liability.
Worksheet 1-5 Projected Tax for 2013	Project the taxable income you will have for 2013 and figure the amount of tax you will have to pay on that income.
Worksheet 1-6 Tax Computation Worksheets for 2013	Figure the amount of tax on your projected taxable income.
Worksheet 1-7 Projected Withholding for 2013	Project the amount of federal income tax that you will have withheld in 2013, compare your projected withholding with your projected tax, and determine whether the amount withheld each payday should be adjusted.
Worksheet 1-8 Converting Credits to Withholding Allowances for 2013 Form W-4	Figure the adjustment to make to line 5 of the Form W-4 Deductions and Adjustments Worksheet to account for your projected tax credits that are not otherwise taken into consideration.

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Worksheet 1-3. Exemption From Withholding for Persons Age 65 or Older or Blind

Use this worksheet only if, for 2012 you had a right to a refund of all federal income tax withheld because you had no tax liability.

Caution. This worksheet does not apply if you can be claimed as a dependent. See Worksheet 1-4 instead.

1.	Check the boxes below that apply to you.
	65 or older □	Blind □
2.	Check the boxes below that apply to your spouse if you will claim your spouse's exemption on your 2013 return.
	65 or older □	Blind □
3.	Add the number of boxes you checked in 1 and 2 above. Enter the result
You can claim exemption from withholding if:
Your filing status is:			and the number on line 3 above is:	and your 2013 total income will be no more than:
Single			1	$11,500
			2	13,000
Head of			1	$14,350
household			2	15,850
Married filing			1	$11,200
separately for			2	12,400
both 2012 and			3	13,600
2013			4	14,800
Other married			1	$21,200*
status			2	22,400*
			3	23,600*
			4	24,800*
* Include both spouses' income whether you will file separately or jointly.
Qualifying			1	$17,300
widow(er)			2	18,500
You cannot claim exemption from withholding if your total income will be more than the amount shown for your filing status.

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Worksheet 1-4. Exemption From Withholding for Dependents Age 65 or Older or Blind

Use this worksheet only if, for 2013, you are a dependent and if, for 2012, you had a right to a refund of all federal income tax withheld because you had no tax liability.

1.	Enter your expected earned income plus $350		1.
2.	Minimum amount		2.	$ 1,000
3.	Compare lines 1 and 2. Enter the larger amount		3.
4.	Limit		4.	6,100
5.	Compare lines 3 and 4. Enter the smaller amount		5.
6.	Enter the appropriate amount from the following table		6.
	Single
	Either 65 or older or blind	$1,500
	Both 65 or older and blind	3,000
	Married filing separately
	Either 65 or older or blind	1,200
	Both 65 or older and blind	2,400
7.	Add lines 5 and 6. Enter the result		7.
8.	Enter your total expected income		8.
You can claim exemption from withholding if line 7 is equal to or more than line 8. You cannot claim exemption from withholding if line 8 is more than line 7.

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Worksheet 1-5. Projected Tax for 2013

Use this worksheet to figure your projected tax for 2013. Note. Enter combined amounts if married filing jointly.
1.	Enter amount of adjusted gross income (AGI) you expect in 2013. (To determine this, you may want to start with the AGI on your last year's return, and add or subtract your expected changes. Also take into account items listed under What's New, earlier.)
	Note. If self-employed, first complete Worksheet 2-3 to figure your expected deduction for self-employment tax. Subtract the amount from Worksheet 2-3, line 11, to figure the line 1 entry		1
2.	If you:
	•	Do not plan to itemize deductions on Schedule A (Form 1040), use Worksheet 2-4 to figure your expected standard deduction and enter that amount here.
	•	Plan to itemize deductions, and the amount on line 1 is: Not more than $300,000 if married filing jointly or qualifying widow(er), $275,000 if head of household, $250,000 if single, or $150,000 if married filing separately, enter the total itemized deductions you expect after applying any limits, such as the 10% limit on medical expenses (7.5% if either you or your spouse is age 65 or older). More than the above limits use Worksheet 1-2 to figure the amount to enter here	2
3.	Subtract line 2 from line 1 (if zero or less, enter -0- and go to line 6)		3
4.	If the amount on line 1 is:
	•	Not more than the amount shown below for your 2013 filing status, multiply the number of exemptions you plan to claim on your 2013 tax return by $3,900 and enter the result here.
	•	More than the amount shown below for your 2013 filing status, use Worksheet 2-6 to figure the amount to enter here. Married filing jointly or Qualifying widow(er) — $300,000 Head of household — $275,000 Single — $250,000 Married filing separately — $150,000	4
5.	Expected taxable income. Subtract line 4 from line 3 (if zero or less, enter -0- here and on line 6, then go to line 7)		5
6.	If the amount on line 1:
	•	Does not include a net capital gain or qualified dividends and you did not exclude foreign earned income or exclude or deduct foreign housing in arriving at the amount on line 1, use the appropriate section of Worksheet 1-6 to figure the tax to enter here.
	•	Includes a net capital gain or qualified dividends, use Worksheet 2-7 to figure the tax to enter here.
	•	Was figured by excluding foreign earned income or excluding or deducting foreign housing, use Worksheet 2-8 to figure the tax to enter here	6
7.	Enter any expected additional taxes from an election to report your child's interest and dividends (Form 8814), lump-sum distributions (Form 4972), recapture of education credits, and alternative minimum tax (Form 6251 or the Alternative Minimum Tax Worksheet in the Form 1040A instructions)		7
8.	Add lines 6 and 7		8
9.	Enter the amount of any expected tax credits. See Table 1-2		9
10.	Subtract line 9 from line 8 (if zero or less, enter -0-)		10
11.	Self-employment tax. Enter the amount from Worksheet 2-3, line 10. (If you expect to file jointly and both of you are self-employed, figure the self-employment tax for each of you separately and enter the total on line 11.)		11
12.	Enter the total of any other expected taxes*		12
13.	Projected tax for 2013. Add lines 10 through 12. Enter the total here and on Worksheet 1-7, line 1		13

*Use the instructions for the 2012 Form 1040 to determine if you expect to owe, for 2013, any of the taxes that would have been entered on your 2012 Form 1040, lines 58 and 59 (boxes a or b), and any write-in amounts on line 60.

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Worksheet 1-6. Tax Computation Worksheets for 2013

Note. If you are figuring the tax on an amount from Worksheet 2-7 (line 1 or 14), or Worksheet 2-8 (line 2 or 3), enter the amount from that worksheet in column (a) of the row that applies to that amount of income. Enter the result on the appropriate line of the worksheet you are completing.

a. Single. Use this worksheet to figure the amount to enter on Worksheet 1-5 line 6, if you expect your filing status for 2013 to be Single.
Expected Taxable Income		(a) Enter amount from Worksheet 1-5, line 5*	(b) Multiplication amount	(c) Multiply (a) by (b)	(d) Subtraction amount	(e) Subtract (d) from (c). Enter the result here and on Worksheet 1-5, line 6*
If Worksheet 1-5, line 5* is —
Over	But not over
$0	$8,925		× 10% (.10)		$0
8,925	36,250		× 15% (.15)		446.25
36,250	87,850		× 25% (.25)		4,071.25
87,850	183,250		× 28% (.28)		6,706.75
183,250	398,350		× 33% (.33)		15,869.25
398,350	400,000		× 35% (.35)		23,836.25
400,000	- - - - -		× 39.6% (.396)		42,236.25
* If you are using Worksheet 2-7, for column (a) above use the amount from line 1 or line 14 and enter the result (from column (e)) on line 37 or line 39, as appropriate. If you are using Worksheet 2-8, for column (a) above use the amount from line 2 or line 3 and enter the result (from column (e)) on line 4 or line 5, as appropriate.

b. Head of Household. Use this worksheet to figure the amount to enter on Worksheet 1-5, line 6, if you expect your filing status for 2013 to be Head of Household.
Expected Taxable Income		(a) Enter amount from Worksheet 1-5, line 5*	(b) Multiplication amount	(c) Multiply (a) by (b)	(d) Subtraction amount	(e) Subtract (d) from (c). Enter the result here and on Worksheet 1-5, line 6*
If Worksheet 1-5, line 5* is —
Over	But not over
$0	$12,750		× 10% (.10)		$0
12,750	48,600		× 15% (.15)		637.50
48,600	125,450		× 25% (.25)		5,497.50
125,450	203,150		× 28% (.28)		9,261.00
203,150	398,350		× 33% (.33)		19,418.50
398,350	425,000		× 35% (.35)		27,385.50
425,000	- - - - -		× 39.6% (.396)		46,935.50
* If you are using Worksheet 2-7, for column (a) above use the amount from line 1 or line 14 and enter the result (from column (e)) on line 37 or line 39, as appropriate. If you are using Worksheet 2-8, for column (a) above use the amount from line 2 or line 3 and enter the result (from column (e)) on line 4 or line 5, as appropriate.

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c. Married Filing Jointly or Qualifying Widow(er). Use this worksheet to figure the amount to enter on Worksheet 1-5, line 6, if you expect your filing status for 2013 to be Married Filing Jointly or Qualifying Widow(er).
Expected Taxable Income		(a) Enter amount from Worksheet 1-5, line 5*	(b) Multiplication amount	(c) Multiply (a) by (b)	(d) Subtraction amount	(e) Subtract (d) from (c). Enter the result here and on Worksheet 1-5, line 6*
If Worksheet 1-5, line 5* is —
Over	But not over
$0	$17,850		× 10% (.10)		$0
17,850	72,500		× 15% (.15)		892.50
72,500	146,400		× 25% (.25)		8,142.50
146,400	223,050		× 28% (.28)		12,534.50
223,050	398,350		× 33% (.33)		23,687.00
398,350	450,000		× 35% (.35)		31,654.00
450,000	- - - - -		× 39.6% (.396)		52,354.00
* If you are using Worksheet 2-7, for column (a) above use the amount from line 1 or line 14 and enter the result (from column (e)) on line 37 or line 39, as appropriate. If you are using Worksheet 2-8, for column (a) above use the amount from line 2 or line 3 and enter the result (from column (e)) on line 4 or line 5, as appropriate.

d. Married Filing Separately. Use this worksheet to figure the amount to enter on Worksheet 1-5, line 6, if you expect your filing status for 2013 to be Married Filing Separately.
Expected Taxable Income		(a) Enter amount from Worksheet 1-5, line 5*	(b) Multiplication amount	(c) Multiply (a) by (b)	(d) Subtraction amount	(e) Subtract (d) from (c). Enter the result here and on Worksheet 1-5, line 6*
If Worksheet 1-5, line 5* is —
Over	But not over
$0	$8,925		× 10% (.10)		$0
8,925	36,250		× 15% (.15)		446.25
36,250	73,200		× 25% (.25)		4,071.25
73,200	111,525		× 28% (.28)		6,267.25
111,525	199,175		× 33% (.33)		11,843.50
199,175	225,000		× 35% (.35)		15,827.00
225,000	- - - - -		× 39.6% (.396)		26,177.00
* If you are using Worksheet 2-7, for column (a) above use the amount from line 1 or line 14 and enter the result (from column (e)) on line 37 or line 39, as appropriate. If you are using Worksheet 2-8, for column (a) above use the amount from line 2 or line 3 and enter the result (from column (e)) on line 4 or line 5, as appropriate

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Worksheet 1-7. Projected Withholding for 2013

Use this worksheet to figure the amount of your projected withholding for 2013, compare it to your projected tax for 2013, and, if necessary, figure an additional amount to have withheld each payday. Note. If married filing jointly, enter combined amounts.
1.	Enter your projected tax for 2013 from Worksheet 1-5, line 13		1
2.	Enter your total federal income tax withheld to date in 2013 from all sources of income. (For wages, you should be able to find the withholding-to-date on your last pay slip or statement.)		2
3.	Enter the federal tax withholding you expect for the rest of 2013:
	a.	For each source of wages, multiply the amount of federal income tax now being withheld each payday by the number of paydays remaining in the year and enter the combined amount for all jobs	3a
	b.	For all other sources of recurring taxable income, multiply the withholding amount by the remaining number of times the income is expected. For example, if you have federal income tax withheld from your monthly pension and you will receive nine more payments this year, multiply your monthly withholding amount by 9	3b
4.	Add lines 2, 3a, and 3b. This is your projected withholding for 2013		4
5.	Compare the amounts on lines 1 and 4.
		• If line 1 is more than line 4, subtract line 4 from line 1. Enter the result here and go to line 6.
		• If line 4 is more than line 1, stop here and see How Do I Decrease My Withholding?	5
6.	Divide line 5 by the number of paydays (or other withholding events) remaining in 2013 and enter the result. This is the additional amount you should have withheld from each remaining payment. Enter this amount on Form W-4, line 6		6

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Worksheet 1-8. Converting Credits to Withholding Allowances
for 2013 Form W-4

Use this worksheet to figure an additional amount to enter on the Form W-4 Deductions and Allowances Worksheet, line 5. For more information on these credits, see Converting Credits to Withholding Allowances, earlier.
Caution. If you enter an amount on line 1 below, enter -0- on line F of the Form W-4 Personal Allowances Worksheet. If you enter an amount on line 3 below, enter -0- on line G of the Form W-4 Personal Allowances Worksheet.
For lines 1 through 9, enter the projected amount for each credit you expect to take.
1.	Credit for child and dependent care expenses (see Caution above)								1
2.	Credit for the elderly or the disabled								2
3.	Child tax credit (including additional child tax credit) (see Caution above)								3
4.	Education credits								4
5.	Adoption credit								5
6.	Foreign tax credit								6
7.	Retirement savings contributions credit								7
8.	Earned income credit								8
9.	Other credits (see Table 1-2)								9
10.	Add lines 1 through 9. This is your total estimated tax credits								10
11.	Using the table below that matches your filing status, find the line in the table that matches your combined income from all sources. Then, enter on line 11 the multiplication factor shown next to your income.

	Married Filing Jointly or Qualifying Widow(er)				Head of Household
	If your combined income from all sources is:			Multiply credits by:	If your combined income from all sources is:			Multiply credits by:
	$0	-	$42,000	10.0	$0	-	$30,000	10.0
	42,001	-	96,000	6.7	30,001	-	65,000	6.7
	96,001	-	175,000	4.0	65,001	-	145,000	4.0
	175,001	-	260,000	3.6	145,001	-	230,000	3.6
	260,001	-	430,000	3.0	230,001	-	430,000	3.0
	430,001	-	480,000	2.8	430,001	-	460,000	2.8
	480,001	and over		2.5	460,001	and over		2.5

	Single				Married Filing Separately
	If your combined income from all sources is:			Multiply credits by:	If your combined income from all sources is:			Multiply credits by:
	$0	-	$19,000	10.0	$0	-	$21,000	10.0
	19,001	-	46,000	6.7	21,001	-	48,000	6.7
	46,001	-	100,000	4.0	48,001	-	87,500	4.0
	100,001	-	200,000	3.6	87,501	-	130,000	3.6
	200,001	-	430,000	3.0	130,001	-	215,000	3.0
	430,001	and over		2.5	215,001	-	240,000	2.8
					240,001	and over		2.5	11
12.	Multiply line 10 by line 11. Enter the result here and include it in the total on line 5 of the Form W-4 Deductions and Adjustments Worksheet								12

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Backup Withholding(p16)

Payments subject to backup withholding.(p16)

Payments not subject to backup withholding.(p16)

Withholding rules.(p16)

How to prevent or stop backup withholding.(p16)

Penalties.(p16)

(p16)

Worksheets for Chapter 1