27.2 Planning Estimated Tax Payments for 2013
In planning your payments for 2013, you may not want to pay any more than is necessary to avoid a penalty. You can avoid a penalty for 2013 by planning payments in 2013 that meet the 90% current-year test or the 100%/110% prior-year safe harbor.
90% current-year test.
If you expect your income, deductions, and tax credits for 2013 to be about the same as they were for 2012, and you will not have any additional liabilities for 2013 that you did not have for 2012, such as for alternative minimum tax (AMT), self-employment tax, household employee taxes, penalty taxes, or recapture taxes, you can base your 2013 withholdings and quarterly estimated tax installments on 90% of your 2012 total tax.
If you expect your 2013 total tax to be lower than your 2012 total tax, such as where your income has dropped, you can base your 2013 withholdings and estimated tax installments on 90% of the estimated 2013 total tax.
You can use the 2013 Estimated Tax Worksheet in the instructions to Form 1040-ES for 2013 to figure the required annual payment under the 90% test, as well as under the prior-year safe harbor test discussed next.
Planning Reminder
Safe harbor for 2013 based on 2012 tax.
If you are uncertain of the amount of your 2013 income and deductions, you can play it safe and avoid a possible penalty for 2013 by having 2013 withholdings and quarterly estimated tax installments equal to your 2012 total tax if your 2012 adjusted gross income is $150,000 or less ($75,000 or less if married filing separately for 2013), provided you filed a 2012 return covering a full 12 months. If your 2012 AGI exceeds the $150,000 (or $75,000) threshold, your payments for 2013 must be at least 110% of your 2012 tax.
If an accurate estimate for 2013 is possible, it is generally advantageous to base your estimated payments on the 90% test rather than the 100%/110% prior year test, as using this prior year test will probably result in an overestimation of your liability unless the 2013 tax turns out to be substantially larger than the 2012 tax.
You may use the worksheet and the tax rate schedule included in the 2013 Form 1040-ES to figure your estimated tax liability and the required annual payment to avoid a penalty under either the 90% current-year or the 100%/110% prior-year liability tests.
Law Alert
Making estimated tax payments.
Reduce your 2013 estimated tax liability by expected withholdings from wages, pensions, and annuities. If after withholdings your estimated tax is $1,000 or more, you must make estimated tax payments unless the withholdings will cover at least 90% of your estimated 2013 liability or 100%/110% of your 2012 liability. If withholdings will not cover the amount required under the 90% or 100%/110% tests, you may pay the balance of the estimated tax with Form 1040-ES vouchers, by credit card or debit card, by scheduling payments using the Electronic Federal Tax Payment System (EFTPS), or by direct debit from your checking or savings account if you electronically file your 2012 return. See www.irs.gov/e-pay for details on the electronic payment options.
Crediting 2012 refund to 2013 estimated tax.
If you are due a refund when you file your 2012 return, it may be credited to your 2013 estimated tax. You may also split up the amount due you. You may take part of the overpayment as a refund. The other part may be credited to your estimate of 2013 taxes. The IRS will credit the refund to the April installment of 2013 estimated tax unless you attach a statement to your return instructing the IRS to apply the refund to later installments.
Check your arithmetic before you apply an overpayment as a credit on your next year’s estimate. If you apply too much, the amount credited may not be used to offset any additional tax due that the IRS determines you owe. For example, your 2012 return shows a $500 refund due, and you apply it towards your 2013 estimated tax. However, the IRS determines that you overpaid $200, not $500. You will be billed for the additional $300 tax, plus interest due; you may not offset the extra tax with the credited amount.
Planning Reminder
Farmers or fishermen.
In figuring the required annual payment to avoid a penalty for 2013, a farmer or fisherman has to pay only 662/3% of the 2013 estimated liability, rather than 90%. A penalty may also be avoided by paying 100% of the 2012 tax, provided a tax return covering a 12-month period was filed for 2012; the 110% test for higher-income taxpayers does not apply to a farmer or fisherman. To qualify as a farmer or fisherman under these rules, at least two-thirds of gross income for 2012 or 2013 must be from farming or fishing.