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Federal And State Taxes Free

Federal and state taxes free 4. Federal and state taxes free   Underpayment Penalty for 2013 Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: General RuleFarmers and fishermen. Federal and state taxes free Higher income taxpayers. Federal and state taxes free Minimum required for higher income taxpayers. Federal and state taxes free Estate or trust payments of estimated tax. Federal and state taxes free Lowering or eliminating the penalty. Federal and state taxes free ExceptionsLess Than $1,000 Due No Tax Liability Last Year Figuring Your Required Annual Payment (Part I) Short Method for Figuring the Penalty (Part III) Regular Method for Figuring the Penalty (Part IV)Figuring Your Underpayment (Part IV, Section A) Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Annualized Income Installment Method (Schedule AI) Farmers and Fishermen Waiver of PenaltyFarmers and fishermen. Federal and state taxes free Introduction If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have underpaid your estimated tax and may have to pay a penalty. Federal and state taxes free You may understand this chapter better if you can refer to a copy of your latest federal income tax return. Federal and state taxes free No penalty. Federal and state taxes free   Generally, you will not have to pay a penalty for 2013 if any of the following apply. Federal and state taxes free The total of your withholding and timely estimated tax payments was at least as much as your 2012 tax. Federal and state taxes free (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen. Federal and state taxes free ) The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time. Federal and state taxes free Your total tax for 2013 (defined later) minus your withholding is less than $1,000. Federal and state taxes free You did not have a tax liability for 2012. Federal and state taxes free You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000. Federal and state taxes free IRS can figure the penalty for you. Federal and state taxes free   If you think you owe the penalty, but you do not want to figure it yourself when you file your tax return, you may not have to. Federal and state taxes free Generally, the IRS will figure the penalty for you and send you a bill. Federal and state taxes free   You only need to figure your penalty in the following three situations. Federal and state taxes free You are requesting a waiver of part, but not all, of the penalty. Federal and state taxes free You are using the annualized income installment method to figure the penalty. Federal and state taxes free You are treating the federal income tax withheld from your income as paid on the dates actually withheld. Federal and state taxes free However, if these situations do not apply to you, and you think you can lower or eliminate your penalty, complete Form 2210 or Form 2210-F and attach it to your return. Federal and state taxes free See Form 2210 , later. Federal and state taxes free Topics - This chapter discusses: The general rule for the underpayment penalty, Special rules for certain individuals, Exceptions to the underpayment penalty, How to figure your underpayment and the amount of your penalty on Form 2210, and How to ask the IRS to waive the penalty. Federal and state taxes free Useful Items - You may want to see: Form (and Instructions) 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen See chapter 5 for information about getting these forms. Federal and state taxes free General Rule In general, you may owe a penalty for 2013 if the total of your withholding and timely estimated tax payments did not equal at least the smaller of: 90% of your 2013 tax, or 100% of your 2012 tax. Federal and state taxes free (Your 2012 tax return must cover a 12-month period. Federal and state taxes free ) Your 2013 tax, for this purpose, is defined under Total tax for 2013 , later. Federal and state taxes free Special rules for certain individuals. Federal and state taxes free   There are special rules for farmers and fishermen and certain higher income taxpayers. Federal and state taxes free Farmers and fishermen. Federal and state taxes free   If at least two-thirds of your gross income for 2012 or 2013 is from farming or fishing, substitute  662/3% for 90% in (1) above. Federal and state taxes free   See Farmers and Fishermen , later. Federal and state taxes free Higher income taxpayers. Federal and state taxes free   If your AGI for 2012 was more than $150,000 ($75,000 if your 2013 filing status is married filing a separate return), substitute 110% for 100% in (2) under General Rule . Federal and state taxes free This rule does not apply to farmers or fishermen. Federal and state taxes free   For 2012, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4. Federal and state taxes free Penalty figured separately for each period. Federal and state taxes free   Because the penalty is figured separately for each payment period, you may owe a penalty for an earlier payment period even if you later paid enough to make up the underpayment. Federal and state taxes free This is true even if you are due a refund when you file your income tax return. Federal and state taxes free Example. Federal and state taxes free You did not make estimated tax payments for 2013 because you thought you had enough tax withheld from your wages. Federal and state taxes free Early in January 2014, you made an estimate of your total 2013 tax. Federal and state taxes free Then you realized that your withholding was $2,000 less than the amount needed to avoid a penalty for underpayment of estimated tax. Federal and state taxes free On January 10, you made an estimated tax payment of $3,000, which is the difference between your withholding and your estimate of your total tax. Federal and state taxes free Your final return shows your total tax to be $50 less than your estimate, so you are due a refund. Federal and state taxes free You do not owe a penalty for your payment due January 15, 2014. Federal and state taxes free However, you may owe a penalty through January 10, 2014, the day you made the $3,000 payment, for your underpayments for the earlier payment periods. Federal and state taxes free Minimum required each period. Federal and state taxes free   You will owe a penalty for any 2013 payment period for which your estimated tax payment plus your withholding for the period and overpayments applied from previous periods was less than the smaller of: 22. Federal and state taxes free 5% of your 2013 tax, or 25% of your 2012 tax. Federal and state taxes free (Your 2012 tax return must cover a 12-month period. Federal and state taxes free ) Minimum required for higher income taxpayers. Federal and state taxes free   If you are subject to the rule for higher income taxpayers, discussed above, substitute 27. Federal and state taxes free 5% for 25% in (2) under General Rule . Federal and state taxes free When penalty is charged. Federal and state taxes free   If you miss a payment or you paid less than the minimum required in a period, you may be charged an underpayment penalty from the date the amount was due to the date the payment is made. Federal and state taxes free If a payment is mailed, the date of the U. Federal and state taxes free S. Federal and state taxes free postmark is considered the date of payment. Federal and state taxes free   If a payment is made electronically, the date the payment is shown on your payment account (checking, savings, etc. Federal and state taxes free ) is considered to be the date of payment. Federal and state taxes free Estate or trust payments of estimated tax. Federal and state taxes free   If you have estimated taxes credited to you from an estate or trust (Schedule K-1 (Form 1041)), treat the payment as made by you on January 15, 2014. Federal and state taxes free Amended returns. Federal and state taxes free    If you file an amended return by the due date of your original return, use the tax shown on your amended return to figure your required estimated tax payments. Federal and state taxes free If you file an amended return after the due date of the original return, use the tax shown on the original return. Federal and state taxes free   However, if you and your spouse file a joint return after the due date to replace separate returns you originally filed by the due date, use the tax shown on the joint return to figure your required estimated tax payments. Federal and state taxes free This rule applies only if both original separate returns were filed on time. Federal and state taxes free 2012 separate returns and 2013 joint return. Federal and state taxes free    If you file a joint return with your spouse for 2013, but you filed separate returns for 2012, your 2012 tax is the total of the tax shown on your separate returns. Federal and state taxes free You filed a separate return if you filed as single, head of household, or married filing separately. Federal and state taxes free 2012 joint return and 2013 separate returns. Federal and state taxes free    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, your 2012 tax is your share of the tax on the joint return. Federal and state taxes free You are filing a separate return if you file as single, head of household, or married filing separately. Federal and state taxes free   To figure your share of the taxes on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2012 using the same filing status as for 2013. Federal and state taxes free Then multiply the tax on the joint return by the following fraction. Federal and state taxes free   The tax you would have paid had you filed a separate return   The total tax you and your spouse would have paid had you filed separate returns Example. Federal and state taxes free Lisa and Paul filed a joint return for 2012 showing taxable income of $49,000 and a tax of $6,484. Federal and state taxes free Of the $49,000 taxable income, $41,000 was Lisa's and the rest was Paul's. Federal and state taxes free For 2013, they file married filing separately. Federal and state taxes free Lisa figures her share of the tax on the 2012 joint return as follows. Federal and state taxes free 2012 tax on $41,000 based on a separate return $ 6,286 2012 tax on $8,000 based on a  separate return 803 Total $ 7,089 Lisa's percentage of total tax  ($6,286 ÷ $ 7,089) 88. Federal and state taxes free 67% Lisa's part of tax on joint return ($6,484 × 88. Federal and state taxes free 67%) $ 5,749 Form 2210. Federal and state taxes free   In most cases, you do not need to file Form 2210. Federal and state taxes free The IRS will figure the penalty for you and send you a bill. Federal and state taxes free If you want us to figure the penalty for you, leave the penalty line on your return blank. Federal and state taxes free Do not file Form 2210. Federal and state taxes free   To determine if you should file Form 2210, see Part II of Form 2210. Federal and state taxes free If you decide to figure your penalty, complete Part I, Part II, and either Part III or Part IV of the form and the Penalty Worksheet in the Instructions for Form 2210. Federal and state taxes free If you use Form 2210, you cannot file Form 1040EZ. Federal and state taxes free   On Form 1040, enter the amount of your penalty on line 77. Federal and state taxes free If you owe tax on line 76, add the penalty to your tax due and show your total payment on line 76. Federal and state taxes free If you are due a refund, subtract the penalty from the overpayment and enter the result on line 73. Federal and state taxes free   On Form 1040A, enter the amount of your penalty on line 46. Federal and state taxes free If you owe tax on line 45, add the penalty to your tax due and show your total payment on line 45. Federal and state taxes free If you are due a refund, subtract the penalty from the overpayment and enter the result on line 42. Federal and state taxes free Lowering or eliminating the penalty. Federal and state taxes free    You may be able to lower or eliminate your penalty if you file Form 2210. Federal and state taxes free You must file Form 2210 with your return if any of the following applies. Federal and state taxes free You request a waiver. Federal and state taxes free See Waiver of Penalty , later. Federal and state taxes free You use the annualized income installment method. Federal and state taxes free See the explanation of this method under Annualized Income Installment Method (Schedule AI) . Federal and state taxes free You use your actual withholding for each payment period for estimated tax purposes. Federal and state taxes free See Actual withholding method under Figuring Your Underpayment (Part IV, Section A). Federal and state taxes free You base any of your required installments on the tax shown on your 2012 return and you filed or are filing a joint return for either 2012 or 2013, but not for both years. Federal and state taxes free Exceptions Generally, you do not have to pay an underpayment penalty if either: Your total tax is less than $1,000, or You had no tax liability last year. Federal and state taxes free Less Than $1,000 Due You do not owe a penalty if the total tax shown on your return minus the amount you paid through withholding (including excess social security and tier 1 railroad retirement (RRTA) tax withholding) is less than $1,000. Federal and state taxes free Total tax for 2013. Federal and state taxes free   For 2013, your total tax on Form 1040 is the amount on line 61 reduced by the following. Federal and state taxes free    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Federal and state taxes free Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Federal and state taxes free The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Federal and state taxes free Any refundable credit amounts listed on lines 64a, 65, 66, 70, and any credit from Form 8885 included on line 71. Federal and state taxes free   If you filed Form 1040A, your 2013 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Federal and state taxes free   If you filed Form 1040EZ, your 2013 total tax is the amount on line 10 reduced by the amount on line 8a. Federal and state taxes free Note. Federal and state taxes free When figuring the amount on line 60, include household employment taxes only if you had federal income tax withheld from your income or you would owe the penalty even if you did not include those taxes. Federal and state taxes free Paid through withholding. Federal and state taxes free    For 2013, the amount you paid through withholding on Form 1040 is the amount on line 62 plus any excess social security or tier 1 RRTA tax withholding on line 69. Federal and state taxes free Add to that any write-in amount on line 72 identified as “Form 8689. Federal and state taxes free ” On Form 1040A, the amount you paid through withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included on line 41. Federal and state taxes free On Form 1040EZ, it is the amount on line 7. Federal and state taxes free No Tax Liability Last Year You do not owe a penalty if you had no tax liability last year and you were a U. Federal and state taxes free S. Federal and state taxes free citizen or resident for the whole year. Federal and state taxes free For this rule to apply, your tax year must have included all 12 months of the year. Federal and state taxes free You had no tax liability for 2012 if your total tax was zero or you were not required to file an income tax return. Federal and state taxes free Example. Federal and state taxes free Ray, who is single and 22 years old, was unemployed for a few months during 2012. Federal and state taxes free He earned $6,700 in wages before he was laid off, and he received $1,400 in unemployment compensation afterwards. Federal and state taxes free He had no other income. Federal and state taxes free Even though he had gross income of $8,100, he did not have to pay income tax because his gross income was less than the filing requirement for a single person under age 65 ($9,750 for 2012). Federal and state taxes free He filed a return only to have his withheld income tax refunded to him. Federal and state taxes free In 2013, Ray began regular work as an independent contractor. Federal and state taxes free Ray made no estimated tax payments in 2013. Federal and state taxes free Even though he did owe tax at the end of the year, Ray does not owe the underpayment penalty for 2013 because he had no tax liability in 2012. Federal and state taxes free Total tax for 2012. Federal and state taxes free   For 2012, your total tax on Form 1040 is the amount on line 61 reduced by the following. Federal and state taxes free    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Federal and state taxes free Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Federal and state taxes free The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Federal and state taxes free Any refundable credit amounts listed on lines 64a, 65, 66, 70, and credits from Forms 8801 (line 27 only), and 8885 included on line 71. Federal and state taxes free   If you filed Form 1040A, your 2012 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Federal and state taxes free   If you filed Form 1040EZ, your 2012 total tax is the amount on line 11 reduced by the amount on line 8a. Federal and state taxes free Figuring Your Required Annual Payment (Part I) Figure your required annual payment in Part I of Form 2210, following the line-by-line instructions. Federal and state taxes free If you rounded the entries on your tax return to whole dollars, you can round on Form 2210. Federal and state taxes free Example. Federal and state taxes free The tax on Lori Lane's 2012 return was $12,400. Federal and state taxes free Her AGI was not more than $150,000 for either 2012 or 2013. Federal and state taxes free The tax on her 2013 return (Form 1040, line 55) is $13,044. Federal and state taxes free Line 56 (self-employment tax) is $8,902. Federal and state taxes free Her 2013 total tax is $21,946. Federal and state taxes free For 2013, Lori had $1,600 income tax withheld and made four equal estimated tax payments ($1,000 each). Federal and state taxes free 90% of her 2013 tax is $19,751. Federal and state taxes free Because she paid less than her 2012 tax ($12,400) and less than 90% of her 2013 tax ($19,751), and does not meet an exception, Lori knows that she owes a penalty for underpayment of estimated tax. Federal and state taxes free The IRS will figure the penalty for Lori, but she decides to figure it herself on Form 2210 and pay it with her taxes when she files her tax return. Federal and state taxes free Lori's required annual payment is $12,400 (100% of 2012 tax) because that is smaller than 90% of her 2013 tax. Federal and state taxes free Different 2012 filing status. Federal and state taxes free    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, see 2012 joint return and 2013 separate returns , earlier, to figure the amount to enter as your 2012 tax on line 8 of Form 2210. Federal and state taxes free Short Method for Figuring the Penalty (Part III) You may be able to use the short method in Part III of Form 2210 to figure your penalty for underpayment of estimated tax. Federal and state taxes free If you qualify to use this method, it will result in the same penalty amount as the regular method. Federal and state taxes free However, either the annualized income installment method or the actual withholding method, explained later, may result in a smaller penalty. Federal and state taxes free You can use the short method only if you meet one of the following requirements. Federal and state taxes free You made no estimated tax payments for 2013 (it does not matter whether you had income tax withholding). Federal and state taxes free You paid the same amount of estimated tax on each of the four payment due dates. Federal and state taxes free If you do not meet either requirement, figure your penalty using the regular method in Part IV of Form 2210 and the Penalty Worksheet in the instructions. Federal and state taxes free Note. Federal and state taxes free If any payment was made before the due date, you can use the short method, but the penalty may be less if you use the regular method. Federal and state taxes free However, if the payment was only a few days early, the difference is likely to be small. Federal and state taxes free You cannot use the short method if any of the following apply. Federal and state taxes free You made any estimated tax payments late. Federal and state taxes free You checked box C or D in Part II of Form 2210. Federal and state taxes free You are filing Form 1040NR or 1040NR-EZ and you did not receive wages as an employee subject to U. Federal and state taxes free S. Federal and state taxes free income tax withholding. Federal and state taxes free If you use the short method, you cannot use the annualized income installment method to figure your underpayment for each payment period. Federal and state taxes free Also, you cannot use your actual withholding during each period to figure your payments for each period. Federal and state taxes free These methods, which may give you a smaller penalty amount, are explained under Figuring Your Underpayment (Part IV, Section A). Federal and state taxes free Complete Part III of Form 2210 following the line-by-line instructions in the Instructions for Form 2210. Federal and state taxes free Regular Method for Figuring the Penalty (Part IV) You can use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if you paid one or more estimated tax payments earlier than the due date. Federal and state taxes free You must use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if any of the following apply to you. Federal and state taxes free You paid one or more estimated tax payments on a date after the due date. Federal and state taxes free You paid at least one, but less than four, installments of estimated tax. Federal and state taxes free You paid estimated tax payments in un- equal amounts. Federal and state taxes free You use the annualized income installment method to figure your underpayment for each payment period. Federal and state taxes free You use your actual withholding during each payment period to figure your payments. Federal and state taxes free Under the regular method, figure your underpayment for each payment period in Section A, then figure your penalty using the Penalty Worksheet in the Instructions for Form 2210. Federal and state taxes free Enter the results on line 27 of Section B. Federal and state taxes free Figuring Your Underpayment (Part IV, Section A) Figure your underpayment of estimated tax for each payment period in Section A following the line-by-line instructions in the Instructions for Form 2210. Federal and state taxes free Complete lines 20 through 26 of the first column before going to line 20 of the next column. Federal and state taxes free Required installments—line 18. Federal and state taxes free   Your required payment for each payment period (line 18) is usually one-fourth of your required annual payment (Part I, line 9). Federal and state taxes free This method—the regular method—is the one to use if you received your income evenly throughout the year. Federal and state taxes free   However, if you did not receive your income evenly throughout the year, you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Federal and state taxes free First complete Schedule AI (Form 2210), then enter the amounts from line 25 of that schedule on line 18 of Form 2210, Part IV. Federal and state taxes free See Annualized Income Installment Method (Schedule AI), later. Federal and state taxes free Payments made—line 19. Federal and state taxes free   Enter in each column the total of: Your estimated tax paid after the due date for the previous column and by the due date shown at the top of the column, and One-fourth of your withholding. Federal and state taxes free For special rules for figuring your payments, see Form 2210 instructions for line 19. Federal and state taxes free   If you file Form 1040, your withholding is the amount on line 62, plus any excess social security or tier 1 RRTA tax withholding on line 69. Federal and state taxes free If you file Form 1040A, your withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included in line 41. Federal and state taxes free Actual withholding method. Federal and state taxes free    Instead of using one-fourth of your withholding for each quarter, you can choose to use the amounts actually withheld by each due date. Federal and state taxes free You can make this choice separately for the tax withheld from your wages and for all other withholding. Federal and state taxes free This includes any excess social security and tier 1 RRTA tax withheld. Federal and state taxes free   Using your actual withholding may result in a smaller penalty if most of your withholding occurred early in the year. Federal and state taxes free   If you use your actual withholding, you must check box D in Form 2210, Part II. Federal and state taxes free Then complete Form 2210 using the regular method (Part IV) and file it with your return. Federal and state taxes free Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Figure the amount of your penalty for Section B using the Penalty Worksheet in the Form 2210 instructions. Federal and state taxes free The penalty is imposed on each underpayment amount shown on Form 2210, Section A, line 25, for the number of days that it remained unpaid. Federal and state taxes free For 2013, there are four rate periods—April 16 through June 30, July 1 through September 30, October 1 through December 31, and January 1, 2014 through April 15, 2014. Federal and state taxes free A 3% rate applies to all four periods. Federal and state taxes free Payments. Federal and state taxes free    Before completing the Penalty Worksheet, it may be helpful to make a list of the payments you made and income tax withheld after the due date (or the last day payments could be made on time) for the earliest payment period an underpayment occurred. Federal and state taxes free For example, if you had an underpayment for the first payment period, list your payments after April 15, 2013. Federal and state taxes free You can use the table in the Form 2210 instructions to make your list. Federal and state taxes free Follow those instructions for listing income tax withheld and payments made with your return. Federal and state taxes free Use the list to determine when each underpayment was paid. Federal and state taxes free   If you mail your estimated tax payments, use the date of the U. Federal and state taxes free S. Federal and state taxes free postmark as the date of payment. Federal and state taxes free Line 1b. Federal and state taxes free   Apply the payments listed to underpayment balance in the first column until it is fully paid. Federal and state taxes free Apply payments in the order made. Federal and state taxes free Figuring the penalty. Federal and state taxes free   If an underpayment was paid in two or more payments on different dates, you must figure the penalty separately for each payment. Federal and state taxes free On line 3 of the Penalty Worksheet enter the number of days between the due date (line 2) and the date of each payment on line 1b. Federal and state taxes free On line 4 figure the penalty for the amount of each payment applied on line 1b or the amount remaining unpaid. Federal and state taxes free If no payments are applied, figure the penalty on the amount on line 1a. Federal and state taxes free Aid for counting days. Federal and state taxes free    Table 4-1 provides a simple method for counting the number of days between a due date and a payment date. Federal and state taxes free Find the number for the date the payment was due by going across to the column of the month the payment was due and moving down the column to the due date. Federal and state taxes free In the same manner, find the number for the date the payment was made. Federal and state taxes free Subtract the due date “number” from the payment date “number. Federal and state taxes free ”   For example, if a payment was due on June 15 (61), but was not paid until September 1 (139), the payment was 78 (139 – 61) days late. Federal and state taxes free Table 4-1. Federal and state taxes free Calendar To Determine the Number of Days a Payment Is Late Instructions. Federal and state taxes free Use this table with Form 2210 if you are completing Part IV, Section B. Federal and state taxes free First, find the number for the payment due date by going across to the column of the month the payment was due and moving down the column to the due date. Federal and state taxes free Then, in the same manner, find the number for the date the payment was made. Federal and state taxes free Finally, subtract the due date number from the payment date number. Federal and state taxes free The result is the number of days the payment is late. Federal and state taxes free Example. Federal and state taxes free The payment due date is June 15 (61). Federal and state taxes free The payment was made on November 4 (203). Federal and state taxes free The payment is 142 days late (203 – 61). Federal and state taxes free Tax Year 2013 Day of 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 Month April May June July Aug. Federal and state taxes free Sept. Federal and state taxes free Oct. Federal and state taxes free Nov. Federal and state taxes free Dec. Federal and state taxes free Jan. Federal and state taxes free Feb. Federal and state taxes free Mar. Federal and state taxes free Apr. Federal and state taxes free 1   16 47 77 108 139 169 200 230 261 292 320 351 2   17 48 78 109 140 170 201 231 262 293 321 352 3   18 49 79 110 141 171 202 232 263 294 322 353 4   19 50 80 111 142 172 203 233 264 295 323 354 5   20 51 81 112 143 173 204 234 265 296 324 355 6   21 52 82 113 144 174 205 235 266 297 325 356 7   22 53 83 114 145 175 206 236 267 298 326 357 8   23 54 84 115 146 176 207 237 268 299 327 358 9   24 55 85 116 147 177 208 238 269 300 328 359 10   25 56 86 117 148 178 209 239 270 301 329 360 11   26 57 87 118 149 179 210 240 271 302 330 361 12   27 58 88 119 150 180 211 241 272 303 331 362 13   28 59 89 120 151 181 212 242 273 304 332 363 14   29 60 90 121 152 182 213 243 274 305 333 364 15 0 30 61 91 122 153 183 214 244 275 306 334 365 16 1 31 62 92 123 154 184 215 245 276 307 335   17 2 32 63 93 124 155 185 216 246 277 308 336   18 3 33 64 94 125 156 186 217 247 278 309 337   19 4 34 65 95 126 157 187 218 248 279 310 338   20 5 35 66 96 127 158 188 219 249 280 311 339   21 6 36 67 97 128 159 189 220 250 281 312 340   22 7 37 68 98 129 160 190 221 251 282 313 341   23 8 38 69 99 130 161 191 222 252 283 314 342   24 9 39 70 100 131 162 192 223 253 284 315 343   25 10 40 71 101 132 163 193 224 254 285 316 344   26 11 41 72 102 133 164 194 225 255 286 317 345   27 12 42 73 103 134 165 195 226 256 287 318 346   28 13 43 74 104 135 166 196 227 257 288 319 347   29 14 44 75 105 136 167 197 228 258 289   348   30 15 45 76 106 137 168 198 229 259 290   349   31   46   107 138   199   260 291   350   Annualized Income Installment Method (Schedule AI) If you did not receive your income evenly throughout the year (for example, your income from a shop you operated at a marina was much larger in the summer than it was during the rest of the year), you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Federal and state taxes free Under this method, your required installment (Part IV, line 18) for one or more payment periods may be less than one-fourth of your required annual payment. Federal and state taxes free To figure your underpayment using this method, complete Form 2210, Schedule AI. Federal and state taxes free Schedule AI annualizes your tax at the end of each payment period based on your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. Federal and state taxes free If you use the annualized income installment method, you must check box C in Part II of Form 2210. Federal and state taxes free Also, you must attach Form 2210 and Schedule AI to your return. Federal and state taxes free If you use Schedule AI for any payment due date, you must use it for all payment due dates. Federal and state taxes free Completing Schedule AI. Federal and state taxes free   Follow the Form 2210 instructions to complete Schedule AI. Federal and state taxes free For each period shown on Schedule AI, figure your income and deductions based on your method of accounting. Federal and state taxes free If you use the cash method of accounting (used by most people), include all income actually or constructively received during the period and all deductions actually paid during the period. Federal and state taxes free Note. Federal and state taxes free Each period includes amounts from the previous period(s). Federal and state taxes free Period (a) includes items for January 1 through March 31. Federal and state taxes free Period (b) includes items for January 1 through May 31. Federal and state taxes free Period (c) includes items for January 1 through August 31. Federal and state taxes free Period (d) includes items for the entire year. Federal and state taxes free Farmers and Fishermen If you are a farmer or fisherman, the following special rules for underpayment of estimated tax apply to you. Federal and state taxes free The penalty for underpaying your 2013 estimated tax will not apply if you file your return and pay all the tax due by March 3, 2014. Federal and state taxes free If you are a fiscal year taxpayer, the penalty will not apply if you file your return and pay the tax due by the first day of the third month after the end of your tax year. Federal and state taxes free Any penalty you owe for underpaying your 2013 estimated tax will be figured from one payment due date, January 15, 2014. Federal and state taxes free The underpayment penalty for 2013 is figured on the difference between the amount of 2013 withholding plus estimated tax paid by the due date and the smaller of: 662/3% (rather than 90%) of your 2013 tax, or 100% of the tax shown on your 2012 return. Federal and state taxes free Even if these special rules apply to you, you will not owe the penalty if you meet either of the two conditions discussed under Exceptions . Federal and state taxes free See Who Must Pay Estimated Tax in chapter 2 for the definition of a farmer or fisherman who is eligible for these special rules. Federal and state taxes free Form 2210-F. Federal and state taxes free   Use Form 2210-F to figure any underpayment penalty. Federal and state taxes free Do not attach it to your return unless you check a box in Part I. Federal and state taxes free However, if none of the boxes apply to you and you owe a penalty, you do not need to attach Form 2210-F. Federal and state taxes free Enter the amount from line 16 on Form 1040, line 77 and add the penalty to any balance due on your return or subtract it from your refund. Federal and state taxes free Keep your filled-in Form 2210-F for your records. Federal and state taxes free    If none of the boxes on Form 2210-F apply to you and you owe a penalty, the IRS can figure your penalty and send you a bill. Federal and state taxes free Waiver of Penalty The IRS can waive the penalty for underpayment if either of the following applies. Federal and state taxes free You did not make a payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty. Federal and state taxes free You retired (after reaching age 62) or became disabled in 2012 or 2013 and both the following requirements are met. Federal and state taxes free You had a reasonable cause for not making the payment. Federal and state taxes free Your underpayment was not due to willful neglect. Federal and state taxes free How to request a waiver. Federal and state taxes free   To request a waiver, see the Instructions for Form 2210. Federal and state taxes free Farmers and fishermen. Federal and state taxes free   To request a waiver, see the Instructions for Form 2210-F. Federal and state taxes free Federally declared disaster. Federal and state taxes free   Certain estimated tax payment deadlines for taxpayers who reside or have a business in a federally declared disaster area are postponed for a period during and after the disaster. Federal and state taxes free During the processing of your tax return, the IRS automatically identifies taxpayers located in a covered disaster area (by county or parish) and applies the appropriate penalty relief. Federal and state taxes free Do not file Form 2210 or 2210-F if your underpayment was due to a federally declared disaster. Federal and state taxes free If you still owe a penalty after the automatic waiver is applied, we will send you a bill. Federal and state taxes free   Individuals, estates, and trusts not in a covered disaster area but whose books, records, or tax professionals' offices are in a covered area are also entitled to relief. Federal and state taxes free Also eligible are relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in a covered disaster area. Federal and state taxes free If you meet either of these eligibility requirements, you must call the IRS disaster hotline at 1-866-562-5227 and identify yourself as eligible for this relief. Federal and state taxes free   Details on the applicable disaster postponement period can be found at IRS. Federal and state taxes free gov. Federal and state taxes free Enter Tax Relief in Disaster Situations. Federal and state taxes free Select the federally declared disaster that affected you. Federal and state taxes free    Worksheet 4-1. Federal and state taxes free 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Note. Federal and state taxes free To figure the annualized entries for lines 2, 3, and 5 below, multiply the expected amount for the period by the  annualization amount on line 2 of Schedule AI for the same period. Federal and state taxes free                   1. Federal and state taxes free Enter line 11 of your Schedule AI, or line 3 from Worksheet 4-2 1. Federal and state taxes free       2. Federal and state taxes free Enter your annualized qualified dividends for the period 2. Federal and state taxes free           3. Federal and state taxes free Are you filing Schedule D?               □ Yes. Federal and state taxes free Enter the smaller of your annualized amount from line 15 or line 16 of Schedule D. Federal and state taxes free If either line 15 or line 16 is blank or a loss, enter -0-. Federal and state taxes free 3. Federal and state taxes free             □ No. Federal and state taxes free Enter your annualized capital gain distributions from Form 1040, line 13             4. Federal and state taxes free Add lines 2 and 3   4. Federal and state taxes free           5. Federal and state taxes free If you are claiming investment interest expense on Form 4952, enter your annualized amount from line 4g of that form. Federal and state taxes free Otherwise, enter -0-   5. Federal and state taxes free           6. Federal and state taxes free Subtract line 5 from line 4. Federal and state taxes free If zero or less, enter -0- 6. Federal and state taxes free       7. Federal and state taxes free Subtract line 6 from line 1. Federal and state taxes free If zero or less, enter -0- 7. Federal and state taxes free       8. Federal and state taxes free Enter: $36,900 if single or married filing separately, $73,800 if married filing jointly or qualifying widow(er), $49,400 if head of household. Federal and state taxes free 8. Federal and state taxes free       9. Federal and state taxes free Enter the smaller of line 1 or line 8 9. Federal and state taxes free       10. Federal and state taxes free Enter the smaller of line 7 or line 9 10. Federal and state taxes free       11. Federal and state taxes free Subtract line 10 from line 9. Federal and state taxes free This amount is taxed at 0% 11. Federal and state taxes free       12. Federal and state taxes free Enter the smaller of line 1 or line 6 12. Federal and state taxes free       13. Federal and state taxes free Enter the amount from line 11 13. Federal and state taxes free       14. Federal and state taxes free Subtract line 13 from line 12 14. Federal and state taxes free       15. Federal and state taxes free Multiply line 14 by 15% (. Federal and state taxes free 15) 15. Federal and state taxes free   16. Federal and state taxes free Figure the tax on the amount on line 7. Federal and state taxes free If the amount on line 7 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Federal and state taxes free If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 16. Federal and state taxes free   17. Federal and state taxes free Add lines 15 and 16 17. Federal and state taxes free   18. Federal and state taxes free Figure the tax on the amount on line 1. Federal and state taxes free If the amount on line 1 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Federal and state taxes free If the amount on line 1 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 18. Federal and state taxes free   19. Federal and state taxes free Tax on all taxable income. Federal and state taxes free Enter the smaller of line 17 or line 18. Federal and state taxes free Also enter this amount on line 12 of Schedule AI in the appropriate column. Federal and state taxes free However, if you are using this worksheet to figure the tax on the amount on line 3 of Worksheet 4-2, enter the amount from line 19 on Worksheet 4-2, line 4 19. Federal and state taxes free   Worksheet 4-2. Federal and state taxes free 2013 Form 2210, Schedule AI—Line 12 Foreign Earned Income Tax Worksheet Before you begin:If Schedule AI, line 11, is zero for the period, do not complete this worksheet. Federal and state taxes free             1. Federal and state taxes free Enter the amount from line 11 of Schedule AI for the period 1. Federal and state taxes free   2. Federal and state taxes free Enter the annualized amount* of foreign earned income and housing amount excluded or deducted (from  Form 2555, lines 45 and 50, or Form 2555-EZ, line 18) in figuring the amount entered for the period on line 1  of Schedule AI 2. Federal and state taxes free   3. Federal and state taxes free Add lines 1 and 2 3. Federal and state taxes free   4. Federal and state taxes free Tax on the amount on line 3. Federal and state taxes free Use the Tax Table, Tax Computation Worksheet, Form 8615**, Qualified Dividends and Capital Gain Tax Worksheet***, or Schedule D Tax Worksheet***, whichever applies. Federal and state taxes free See the 2013 Instructions for Form 1040, line 44, to find out which tax computation method to use. Federal and state taxes free (Note. Federal and state taxes free You do not have to use the same method for each period on Schedule AI. Federal and state taxes free ) 4. Federal and state taxes free   5. Federal and state taxes free Tax on the amount on line 2. Federal and state taxes free If the amount on line 2 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Federal and state taxes free If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 5. Federal and state taxes free   6. Federal and state taxes free Subtract line 5 from line 4. Federal and state taxes free Enter the result here and on line 12 of Schedule AI. Federal and state taxes free If zero or less,  enter -0- 6. Federal and state taxes free             * To figure the annualized amount for line 2, multiply the exclusion or deduction for the period by the annualization amount on line 2 of Schedule AI for the same period. Federal and state taxes free     ** If you use Form 8615 to figure the tax on line 4 above, enter the amount from line 3 above on line 4 of Form 8615. Federal and state taxes free If the child's parent files Form 2555 or 2555-EZ, enter the amounts from lines 3 and 4 of the parent's Foreign Earned Income Tax Worksheet on lines 6 and 10, respectively, of Form 8615. Federal and state taxes free Complete the rest of Form 8615 according to its instructions. Federal and state taxes free Then complete lines 5 and 6 above. Federal and state taxes free     *** Enter the amount from line 3 above on line 1 of the Qualified Dividends and Capital Gain Tax Worksheet (or Worksheet 4-1 in this chapter) or the Schedule D Tax Worksheet, whichever worksheet you use to figure the tax on line 4 above. Federal and state taxes free Complete that worksheet through line 6 (line 10 if you use the Schedule D Tax Worksheet). Federal and state taxes free Next, determine if you have a capital gain excess. Federal and state taxes free     Figuring capital gain excess. Federal and state taxes free To find out if you have a capital gain excess for the appropriate period, subtract line 11 of Schedule AI from line 6 of Worksheet 4-1 or your Qualified Dividends and Capital Gain Tax Worksheet (line 10 of your Schedule D Tax Worksheet). Federal and state taxes free If the result is more than zero, that amount is your capital gain excess. Federal and state taxes free     No capital gain excess. Federal and state taxes free If you do not have a capital gain excess, complete the rest of Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or the Schedule D Tax Worksheet according to the worksheet's instructions. Federal and state taxes free Then complete lines 5 and 6 above. Federal and state taxes free     Capital gain excess. Federal and state taxes free If you have a capital gain excess, complete a second Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or Schedule D Tax Worksheet (whichever applies) as instructed above but in its entirety and with the following additional modifications. Federal and state taxes free Then complete lines 5 and 6 above. Federal and state taxes free     Make the modifications below only for purposes of filling out Worksheet 4-2 above. Federal and state taxes free     a. Federal and state taxes free Reduce (but not below zero) the amount you otherwise would enter on line 3 of your Worksheet 4-1, line 3 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 9 of your Schedule D Tax Worksheet by your capital gain excess. Federal and state taxes free     b. Federal and state taxes free Reduce (but not below zero) the amount you otherwise would enter on line 2 of your Worksheet 4-1, line 2 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 6 of your Schedule D Tax Worksheet by any of your capital gain excess not used in (a) above. Federal and state taxes free     c. Federal and state taxes free Reduce (but not below zero) the amount on your Schedule D (Form 1040), line 18, by your capital gain excess. Federal and state taxes free     d. Federal and state taxes free Include your capital gain excess as a loss on line 16 of your Unrecaptured Section 1250 Gain Worksheet in the 2013 Instructions for Schedule D (Form 1040). Federal and state taxes free   Prev  Up  Next   Home   More Online Publications
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Federal and state taxes free 12. Federal and state taxes free   Self-Employment Tax Table of Contents What's New for 2013 What's New for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Why Pay Self-Employment Tax? How To Pay Self-Employment TaxReplacing a lost social security card. Federal and state taxes free Name change. Federal and state taxes free Penalty for underpayment of estimated tax. Federal and state taxes free Who Must Pay Self-Employment Tax?Limited partner. Federal and state taxes free Community property. Federal and state taxes free Figuring Self-Employment EarningsLandlord Participation in Farming Methods for Figuring Net EarningsRegular Method Farm Optional Method Nonfarm Optional Method Using Both Optional Methods Reporting Self-Employment Tax What's New for 2013 Tax rates. Federal and state taxes free  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. Federal and state taxes free 4% to 12. Federal and state taxes free 4%. Federal and state taxes free The Medicare part of the tax remains at 2. Federal and state taxes free 9%. Federal and state taxes free As a result, the self-employment tax is increased from 13. Federal and state taxes free 3% to 15. Federal and state taxes free 3%. Federal and state taxes free Additional Medicare Tax. Federal and state taxes free . Federal and state taxes free  For tax years beginning in 2013, a 0. Federal and state taxes free 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. Federal and state taxes free Use Form 8959, Additional Medicare Tax, to figure this tax. Federal and state taxes free For more information, see the Instructions for Form 8959. Federal and state taxes free Maximum net earnings. Federal and state taxes free  The maximum net self-employment earnings subject to the social security part (12. Federal and state taxes free 4%) of the self-employment tax increased to $113,700 for 2013. Federal and state taxes free There is no maximum limit on earnings subject to the Medicare part (2. Federal and state taxes free 9%). Federal and state taxes free What's New for 2014 Maximum net earnings. Federal and state taxes free  The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. Federal and state taxes free Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Federal and state taxes free It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. Federal and state taxes free You usually have to pay SE tax if you are self-employed. Federal and state taxes free You are usually self-employed if you operate your own farm on land you either own or rent. Federal and state taxes free You have to figure SE tax on Schedule SE (Form 1040). Federal and state taxes free Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. Federal and state taxes free See chapter 13 for information on employment taxes. Federal and state taxes free Self-employment tax rate. Federal and state taxes free   For tax years beginning in 2013, the self-employment tax rate is 15. Federal and state taxes free 3%. Federal and state taxes free The rate consists of two parts: 12. Federal and state taxes free 4% for social security (old-age, survivors, and disability insurance) and 2. Federal and state taxes free 9% for Medicare (hospital insurance). Federal and state taxes free Topics - This chapter discusses: Why pay self-employment tax How to pay self-employment tax Who must pay self-employment tax Figuring self-employment earnings Landlord participation in farming Methods for figuring net earnings Reporting self-employment tax Useful Items - You may want to see: Publication 541 Partnerships Form (and Instructions) 1040 U. Federal and state taxes free S. Federal and state taxes free Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. Federal and state taxes free S. Federal and state taxes free Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Federal and state taxes free See chapter 16 for information about getting publications and forms. Federal and state taxes free Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. Federal and state taxes free Your payments of SE tax contribute to your coverage under the social security system. Federal and state taxes free Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Federal and state taxes free How to become insured under social security. Federal and state taxes free   You must be insured under the social security system before you begin receiving social security benefits. Federal and state taxes free You are insured if you have the required number of credits (also called quarters of coverage). Federal and state taxes free Earning credits in 2013. Federal and state taxes free   You can earn a maximum of four credits per year. Federal and state taxes free For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. Federal and state taxes free You need $4,640 ($1,160 × 4) of combined wages and self-employment earnings subject to social security tax to earn four credits in 2013. Federal and state taxes free It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. Federal and state taxes free For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office or visit the SSA website at www. Federal and state taxes free socialsecurity. Federal and state taxes free gov. Federal and state taxes free Making false statements to get or to increase social security benefits may subject you to penalties. Federal and state taxes free The Social Security Administration (SSA) time limit for posting self-employment earnings. Federal and state taxes free   Generally, the SSA will give you credit only for self-employment earnings reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Federal and state taxes free    If you file your tax return or report a change in your self-employment earnings after the SSA time limit for posting self-employment earnings, the SSA may change its records, but only to remove or reduce the amount. Federal and state taxes free The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. Federal and state taxes free How To Pay Self-Employment Tax To pay SE tax, you must have a social security number (SSN) or an individual taxpayer identification number (ITIN). Federal and state taxes free This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. Federal and state taxes free An ITIN does not entitle you to social security benefits. Federal and state taxes free Obtaining an ITIN does not change your immigration or employment status under U. Federal and state taxes free S. Federal and state taxes free law. Federal and state taxes free Obtaining a social security number. Federal and state taxes free   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. Federal and state taxes free The application is also available in Spanish. Federal and state taxes free You can get this form at any Social Security office or by calling 1-800-772-1213. Federal and state taxes free    You can also download Form SS-5 from the Social Security Administration website at  www. Federal and state taxes free socialsecurity. Federal and state taxes free gov. Federal and state taxes free   If you have a social security number from the time you were an employee, you must use that number. Federal and state taxes free Do not apply for a new one. Federal and state taxes free Replacing a lost social security card. Federal and state taxes free   If you have a number but lost your card, file Form SS-5. Federal and state taxes free You will get a new card showing your original number, not a new number. Federal and state taxes free Name change. Federal and state taxes free   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. Federal and state taxes free Obtaining an individual taxpayer identification number. Federal and state taxes free   The IRS will issue you an ITIN, for tax use only, if you are a nonresident or resident alien and you do not have, and are not eligible to get, an SSN. Federal and state taxes free To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. Federal and state taxes free You can get this form by calling 1-800-829-3676. Federal and state taxes free For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. Federal and state taxes free Form W-7 and Publication 1915 are also available in Spanish. Federal and state taxes free    You can also download Form W-7 from the IRS website at IRS. Federal and state taxes free gov. Federal and state taxes free Paying estimated tax. Federal and state taxes free   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. Federal and state taxes free You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. Federal and state taxes free Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. Federal and state taxes free   However, if at least two-thirds of your gross income for 2013 or 2014 was from farming and you file your 2014 Form 1040 and pay all the tax due by March 2, 2015, you do not have to pay any estimated tax. Federal and state taxes free For more information about estimated tax for farmers, see chapter 15. Federal and state taxes free Penalty for underpayment of estimated tax. Federal and state taxes free   You may have to pay a penalty if you do not pay enough estimated tax by its due date. Federal and state taxes free Who Must Pay Self-Employment Tax? You must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Federal and state taxes free The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. Federal and state taxes free Aliens. Federal and state taxes free   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. Federal and state taxes free S. Federal and state taxes free citizens. Federal and state taxes free Nonresident aliens are not subject to self-employment tax. Federal and state taxes free However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. Federal and state taxes free S. Federal and state taxes free residents for self-employment tax purposes. Federal and state taxes free For more information on aliens, see Publication 519, U. Federal and state taxes free S. Federal and state taxes free Tax Guide for Aliens. Federal and state taxes free Are you self-employed?   You are self-employed if you carry on a trade or business (such as running a farm) as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. Federal and state taxes free A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. Federal and state taxes free Share farmer. Federal and state taxes free   You are a self-employed farmer under an income-sharing arrangement if both the following apply. Federal and state taxes free You produce a crop or raise livestock on land belonging to another person. Federal and state taxes free Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. Federal and state taxes free Your net farm profit or loss from the income-sharing arrangement is reported on Schedule F (Form 1040) and included in your self-employment earnings. Federal and state taxes free   If you produce a crop or livestock on land belonging to another person and are to receive a specified rate of pay, a fixed sum of money, or a fixed quantity of the crop or livestock, and not a share of the crop or livestock or their proceeds, you may be either self-employed or an employee of the landowner. Federal and state taxes free This will depend on whether the landowner has the right to direct or control your performance of services. Federal and state taxes free Example. Federal and state taxes free A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. Federal and state taxes free Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. Federal and state taxes free The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. Federal and state taxes free The share farmer is provided a house in which to live. Federal and state taxes free The landowner and the share farmer decide on a cropping plan. Federal and state taxes free The share farmer is a self-employed farmer for purposes of the agreement to produce the crops, and the share farmer's part of the profit or loss from the crops is reported on Schedule F (Form 1040) and included in self-employment earnings. Federal and state taxes free The tax treatment of the landowner is discussed later under Landlord Participation in Farming. Federal and state taxes free Contract farming. Federal and state taxes free   Under typical contract farming arrangements, the grower receives a fixed payment per unit of crops or finished livestock delivered to the processor or packing company. Federal and state taxes free Since the grower typically furnishes labor and bears some production risk, the payments are reported on Schedule F and are therefore subject to self-employment tax. Federal and state taxes free 4-H Club or FFA project. Federal and state taxes free   If an individual participates in a 4-H Club or Future Farmers of America (FFA) project, any net income received from sales or prizes related to the project may be subject to income tax. Federal and state taxes free Report the net income as “Other income” on line 21 of Form 1040. Federal and state taxes free If necessary, attach a statement showing the gross income and expenses. Federal and state taxes free The net income may not be subject to SE tax if the project is primarily for educational purposes and not for profit, and is completed by the individual under the rules and economic restrictions of the sponsoring 4-H or FFA organization. Federal and state taxes free Such a project is generally not considered a trade or business. Federal and state taxes free Partners in a partnership. Federal and state taxes free   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. Federal and state taxes free Limited partner. Federal and state taxes free   If you are a limited partner, your partnership income is generally not subject to SE tax. Federal and state taxes free However, guaranteed payments you receive for services you perform for the partnership are subject to SE tax and should be reported to you in box 14 of your Schedule K-1 (Form 1065). Federal and state taxes free Business Owned and Operated by Spouses. Federal and state taxes free   If you and your spouse jointly own and operate a farm as an unincorporated business and share in the profits and losses, you are partners in a partnership whether or not you have a formal partnership agreement. Federal and state taxes free You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. Federal and state taxes free Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Federal and state taxes free Qualified joint venture. Federal and state taxes free   If you and your spouse each materially participate as the only members of a jointly owned and operated farm, and you file a joint tax return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Federal and state taxes free For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. Federal and state taxes free   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Federal and state taxes free Each of you must file a separate Schedule F and a separate Schedule SE. Federal and state taxes free For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). Federal and state taxes free Spouse employee. Federal and state taxes free   If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. Federal and state taxes free For more information about employment taxes, see chapter 13. Federal and state taxes free Community property. Federal and state taxes free   If you are a partner and your distributive share of any income or loss from a trade or business carried on by the partnership is community property, treat your share as your self-employment earnings. Federal and state taxes free Do not treat any of your share as self-employment earnings of your spouse. Federal and state taxes free Figuring Self-Employment Earnings Farmer. Federal and state taxes free   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. Federal and state taxes free Partnership income or loss. Federal and state taxes free   If you are a member of a partnership that carries on a trade or business, the partnership should report your self-employment earnings in box 14, code A, of your Schedule K-1 (Form 1065). Federal and state taxes free Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). Federal and state taxes free Use these amounts if you use the farm or nonfarm optional method to figure net earnings from self-employment (see Methods for Figuring Net Earnings , later). Federal and state taxes free   If you are a general partner, you may need to reduce these reported earnings by amounts you claim as a section 179 deduction, unreimbursed partnership expenses, or depletion on oil and gas properties. Federal and state taxes free   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. Federal and state taxes free   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). Federal and state taxes free   For general information on partnerships, see Publication 541. Federal and state taxes free More than one business. Federal and state taxes free   If you have self-employment earnings from more than one trade, business, or profession, you generally must combine the net profit or loss from each to determine your total self-employment earnings. Federal and state taxes free A loss from one business reduces your profit from another business. Federal and state taxes free However, do not combine earnings from farm and nonfarm businesses if you are using one of the optional methods (discussed later) to figure net earnings. Federal and state taxes free Community property. Federal and state taxes free   If any of the income from a farm or business, other than a partnership, is community property under state law, it is included in the self-employment earnings of the spouse carrying on the trade or business. Federal and state taxes free Lost income payments. Federal and state taxes free   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. Federal and state taxes free These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. Federal and state taxes free Even if you are not farming when you receive the payment, it is included in self-employment earnings if it relates to your farm business (even though it is temporarily inactive). Federal and state taxes free A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. Federal and state taxes free Gain or loss. Federal and state taxes free   A gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers is not included in self-employment earnings. Federal and state taxes free It does not matter whether the disposition is a sale, exchange, or involuntary conversion. Federal and state taxes free For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. Federal and state taxes free Investment property. Federal and state taxes free Depreciable property or other fixed assets used in your trade or business. Federal and state taxes free Livestock held for draft, breeding, sport, or dairy purposes, and not held primarily for sale, regardless of how long the livestock was held, or whether it was raised or purchased. Federal and state taxes free Unharvested standing crops sold with land held more than 1 year. Federal and state taxes free Timber, coal, or iron ore held for more than 1 year if an economic interest was retained, such as a right to receive coal royalties. Federal and state taxes free   A gain or loss from the cutting of timber is not included in self-employment earnings if the cutting is treated as a sale or exchange. Federal and state taxes free For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. Federal and state taxes free Wages and salaries. Federal and state taxes free   Wages and salaries received for services performed as an employee and covered by social security or railroad retirement are not included in self-employment earnings. Federal and state taxes free   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. Federal and state taxes free Retired partner. Federal and state taxes free   Retirement income received by a partner from his or her partnership under a written plan is not included in self-employment earnings if all the following apply. Federal and state taxes free The retired partner performs no services for the partnership during the year. Federal and state taxes free The retired partner is owed only the retirement payments. Federal and state taxes free The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. Federal and state taxes free The payments to the retired partner are lifelong periodic payments. Federal and state taxes free Conservation Reserve Program (CRP) payments. Federal and state taxes free   Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a longterm contract with the USDA, agreeing to convert to a less intensive use of that cropland. Federal and state taxes free You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. Federal and state taxes free Cost share payments you receive may qualify for the costsharing exclusion. Federal and state taxes free See Cost-Sharing Exclusion (Improvements), above. Federal and state taxes free CRP payments are reported to you on Form 1099G. Federal and state taxes free Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Federal and state taxes free See the instructions for Schedule SE (Form 1040). Federal and state taxes free Self-employed health insurance deduction. Federal and state taxes free   You cannot deduct the self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings on Schedule SE (Form 1040). Federal and state taxes free Landlord Participation in Farming As a general rule, income and deductions from rentals and from personal property leased with real estate are not included in determining self-employment earnings. Federal and state taxes free However, income and deductions from farm rentals, including government commodity program payments received by a landowner who rents land, are included if the rental arrangement provides that the landowner will, and does, materially participate in the production or management of production of the farm products on the land. Federal and state taxes free Crop shares. Federal and state taxes free   Rent paid in the form of crop shares is included in self-employment earnings for the year you sell, exchange, give away, or use the crop shares if you meet one of the four material participation tests (discussed next) at the time the crop shares are produced. Federal and state taxes free Feeding such crop shares to livestock is considered using them. Federal and state taxes free Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. Federal and state taxes free Material participation for landlords. Federal and state taxes free   You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. Federal and state taxes free You do at least three of the following. Federal and state taxes free Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. Federal and state taxes free Furnish at least half the tools, equipment, and livestock used in the production activities. Federal and state taxes free Advise or consult with your tenant. Federal and state taxes free Inspect the production activities periodically. Federal and state taxes free You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. Federal and state taxes free You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. Federal and state taxes free You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. Federal and state taxes free These tests may be used as general guides for determining whether you are a material participant. Federal and state taxes free Example. Federal and state taxes free Drew Houston agrees to produce a crop on J. Federal and state taxes free Clarke's cotton farm, with each receiving half the proceeds. Federal and state taxes free Clarke advises Houston when to plant, spray, and pick the cotton. Federal and state taxes free During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. Federal and state taxes free Houston furnishes all labor needed to grow and harvest the crop. Federal and state taxes free The management decisions made by Clarke in connection with the care of the cotton crop and his regular inspection of the crop establish that he participates to a material degree in the cotton production operations. Federal and state taxes free The income Clarke receives from his cotton farm is included in his self-employment earnings. Federal and state taxes free Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. Federal and state taxes free The regular method. Federal and state taxes free The farm optional method. Federal and state taxes free The nonfarm optional method. Federal and state taxes free You must use the regular method unless you are eligible to use one or both of the optional methods. Federal and state taxes free See Figure 12-1 , shown later. Federal and state taxes free Figure 12-1. Federal and state taxes free Can I Use the Optional Methods? Please click here for the text description of the image. Federal and state taxes free Figure 12–1. Federal and state taxes free Can I Use the Optional Methods? Why use an optional method?   You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. Federal and state taxes free You want to receive credit for social security benefit coverage. Federal and state taxes free You incurred child or dependent care expenses for which you could claim a credit. Federal and state taxes free (An optional method may increase your earned income, which could increase your credit. Federal and state taxes free ) You are entitled to the earned income credit. Federal and state taxes free (An optional method may increase your earned income, which could increase your credit. Federal and state taxes free ) You are entitled to the additional child tax credit. Federal and state taxes free (An optional method may increase your earned income, which could increase your credit. Federal and state taxes free ) Effects of using an optional method. Federal and state taxes free   Using an optional method could increase your SE tax. Federal and state taxes free Paying more SE tax may result in you getting higher social security disability or retirement benefits. Federal and state taxes free   If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller SE tax or no SE tax using the regular method. Federal and state taxes free   The optional methods may be used only to figure your SE tax. Federal and state taxes free To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. Federal and state taxes free Regular Method Multiply your total self-employment earnings by 92. Federal and state taxes free 35% (. Federal and state taxes free 9235) to get your net earnings under the regular method. Federal and state taxes free See Short Schedule SE, line 4, or Long Schedule SE, line 4a. Federal and state taxes free Net earnings figured using the regular method are also called “actual net earnings. Federal and state taxes free ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. Federal and state taxes free You can use this method if you meet either of the following tests. Federal and state taxes free Your gross farm income is $6,960 or less. Federal and state taxes free Your net farm profits are less than $5,024. Federal and state taxes free Gross farm income. Federal and state taxes free   Your gross farm income is the total of the amounts from: Schedule F (Form 1040), line 9, and Schedule K-1 (Form 1065), box 14, code B (from farm partnerships). Federal and state taxes free Net farm profits. Federal and state taxes free   Net farm profits generally are the total of the amounts from: Schedule F (Form 1040), line 34, and Schedule K-1 (Form 1065), box 14, code A (from farm partnerships). Federal and state taxes free However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. Federal and state taxes free For more information, see Partnership income or loss , earlier. Federal and state taxes free Figuring farm net earnings. Federal and state taxes free   If you meet either of the two tests explained above, use Table 12-1. Federal and state taxes free Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. Federal and state taxes free Table 12-1. Federal and state taxes free Figuring Farm Net Earnings IF your gross farm income  is. Federal and state taxes free . Federal and state taxes free . Federal and state taxes free THEN your net earnings are equal to. Federal and state taxes free . Federal and state taxes free . Federal and state taxes free $6,960 or less Two-thirds of your gross farm income. Federal and state taxes free More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. Federal and state taxes free   If your gross farm income is $6,960 or less and your farm net earnings figured under the farm optional method are less than your actual net earnings, you can use the farm optional method to reduce or eliminate your SE tax. Federal and state taxes free Your actual net earnings are your net earnings figured using the regular method, explained earlier. Federal and state taxes free Example. Federal and state taxes free Your gross farm income is $540 and your net farm profit is $460. Federal and state taxes free Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. Federal and state taxes free 35% of $460). Federal and state taxes free You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. Federal and state taxes free Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. Federal and state taxes free If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. Federal and state taxes free You can use this method even if you do not use the farm optional method for determining your farm net earnings and even if you have a net loss from your nonfarm business. Federal and state taxes free For more information about the nonfarm optional method, see Publication 334. Federal and state taxes free You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. Federal and state taxes free Using Both Optional Methods If you use both optional methods, you must add the net earnings figured under each method to arrive at your total net earnings from self-employment. Federal and state taxes free You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. Federal and state taxes free If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. Federal and state taxes free Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. Federal and state taxes free Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. Federal and state taxes free Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. Federal and state taxes free However, certain taxpayers must use Section B–Long Schedule SE. Federal and state taxes free Use the chart on page 1 of Schedule SE to find out which one to use. Federal and state taxes free If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. Federal and state taxes free Deduction for employer-equivalent portion of self-employment tax. Federal and state taxes free   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. Federal and state taxes free This deduction only affects your income tax. Federal and state taxes free It does not affect either your net earnings from self-employment or your SE tax. Federal and state taxes free   To deduct the tax, enter on Form 1040, line 27, the amount shown on Section A, Line 6, or Section B, line 13, Deduction for employer-equivalent portion of self-employment tax, of the Schedule SE. Federal and state taxes free Joint return. Federal and state taxes free   Even if you file a joint return, you cannot file a joint Schedule SE. Federal and state taxes free This is true whether one spouse or both spouses have self-employment earnings. Federal and state taxes free Your spouse is not considered self-employed just because you are. Federal and state taxes free If both of you have self-employment earnings, each of you must complete a separate Schedule SE. Federal and state taxes free However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. Federal and state taxes free Attach both schedules to the joint return. Federal and state taxes free If you and your spouse operate a business as a partnership, see Business Owned and Operated by Spouses and Qualified joint venture , earlier, under Who Must Pay Self-Employment Tax . Federal and state taxes free Prev  Up  Next   Home   More Online Publications