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Publication 505

and Estimated  



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. 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 did not 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. This underpayment penalty, and the exceptions to it, are discussed in chapter 4.
Nonresident aliens.(p2)
Before completing Form W-4, nonresident alien employees should see 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 Publication 519, U.S. Tax Guide for Aliens, for important information on withholding.

What's new for 2011 and 2012.(p2)

See What's New for 2012 in this chapter 1, and What's New in chapter 4 for 2011 changes.

Comments and suggestions.(p2)

We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:

Internal Revenue Service
Individual Forms and Publications Branch
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
You can email us at Please put "Publications Comment" on the subject line. You can also send us comments from Select "Comment on Tax Forms and Publications" under "Information about."
Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.
Ordering forms and publications.(p2)
Visit to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.

Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613

Tax questions.(p2)
If you have a tax question, check the information available on or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

What's New for 2012(p2)

Future developments.(p2)
The IRS has created a page on for information about Publication 505 at Information about any future developments affecting Publication 505 (such as legislation enacted after we release it) will be posted on that page.
Income limits for excluding education savings bond interest increased.(p2)
In order to exclude interest, your modified adjusted gross income (MAGI) must be less than $87,850 ($139,250 if married filing jointly or qualifying widow(er)).
Foreign earned income exclusion.(p2)
The maximum exclusion has increased to $95,100.
Standard mileage rates. (p2)
The rate for business use of your vehicle is increased to 55.5 cents per mile. The rate for use of your vehicle to get medical care or move is increased to 23 cents per mile. The rate of 14 cents per mile for charitable use is unchanged.
Personal exemption increased.(p2)
For tax years beginning in 2012, the personal exemption amount is increased to $3,800.
Alternative minimum tax (AMT) exemption amount decreased.(p2)
The AMT exemption amount is decreased to $33,750 ($45,000 if married filing jointly or qualifying widow(er); $22,500 if married filing separately).
Lifetime learning credit income limits decreased.(p2)
In order to claim a lifetime learning credit, your MAGI must be less than $52,000 ($104,000 if married filing jointly).
Retirement savings contribution credit income limits increased.(p2)
In order to claim this credit, your MAGI must be less than $28,750 ($57,500 if married filing jointly; $43,125 if head of household).
Adoption credit or exclusion.(p2)
The maximum adoption credit or exclusion for employer-provided adoption benefits has decreased to $12,650. In order to claim either the credit or exclusion, your MAGI must be less than $229,710.
Adoption credit no longer refundable.(p2)
For years beginning after 2011, the adoption credit is no longer refundable.
Temporary decrease in employee's share of payroll tax extended.(p2)
Social security will be withheld from an employee’s wages at the rate of 4.2% (down from 6.2%) up to the social security wage limit of $110,100. There is no change to Medicare withholding.
The same decrease applies to net earnings from self-employment—the rate will be 10.4% (down from 12.4%) up to the social security wage limit of $110,100.
Earned income credit (EIC). (p2)
You may be able to take the EIC in 2012 if:
  • Three or more children lived with you and you earned less than $45,060 ($50,270 if married filing jointly),
  • Two children lived with you and you earned less than $41,592 ($47,162 if married filing jointly),
  • One child lived with you and you earned less than $36,920 ($42,130 if married filing jointly), or
  • A child did not live with you and you earned less than $13,980 ($19,190 if married filing jointly).
Also, the maximum AGI you can have and still get the credit has increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you. The maximum investment income you can have and get the credit has increased to $3,200.

Expiring Tax Benefits(p2)

The following benefits are scheduled to expire or have been repealed and will not be available for 2012.


Roth IRAs. (p2)
If you rolled over or converted part or all of another retirement plan to a Roth IRA in 2010, or made an in-plan rollover to a designated Roth account in 2010, and did not elect to include all of the resulting taxable amount in income for 2010, you must report half of that taxable amount on your 2011 return and the rest on your 2012 return. See the Instructions for Form 8606 for more information.
Social security (FICA) tax.(p2)
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 $110,100 in 2012.
Photographs of missing children.(p2)
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.