Form 1040-ES (NR): U.S. Estimated Tax for Nonresident Alien Individuals (2016)
What Form 1040-ES (NR) Is For
Form 1040-ES (NR) is the payment voucher package that nonresident aliens use to calculate and pay estimated taxes throughout the year on income that isn't subject to automatic withholding. Think of it as a "pay-as-you-go" system for taxes on money you earn that doesn't have taxes automatically taken out—like income from self-employment, rental properties, investments, or business income. Unlike U.S. citizens and residents who use the regular Form 1040-ES, nonresident aliens have special rules and use this distinct NR version.
The package includes worksheets to help you calculate how much tax you'll owe for the year, instructions for determining your payment amounts, and payment vouchers you mail with your quarterly payments. It's designed for nonresident aliens who expect to owe at least $1,000 in taxes after subtracting any withholding and credits. The form ensures you pay your U.S. taxes in installments rather than facing a large bill when you file your annual return.
When You’d Use Form 1040-ES (NR) (Including Late and Amended Payments)
Regular Use
You must make estimated tax payments if you're a nonresident alien and meet both conditions: (1) you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits, and (2) you expect your withholding and credits to be less than 90% of your current year's tax or 100% of your prior year's tax (110% if your 2015 adjusted gross income exceeded $150,000).
Special Timing Rules
Special timing rules apply depending on your income sources. If you have wages subject to U.S. withholding, you make four payments: April 18, June 15, September 15, 2016, and January 17, 2017. If you don't have wages subject to withholding, you make three payments starting June 15, 2016.
Amending Payments
If your income, deductions, or credits change significantly during the year, you must refigure your estimated tax and adjust future payments. Calculate your new total estimated tax, then determine what remains to be paid across the remaining payment periods. If an earlier payment was too small, you might owe penalties even if later payments are correct.
Late Payments
You can start making estimated payments even after the first deadline passes if circumstances change—for example, if you have a large capital gain late in the year. Use the annualized income installment method (explained in IRS Publication 505) to calculate payments for remaining periods. Missing or late payments trigger underpayment penalties, though the penalty can be waived under certain circumstances like casualty, disaster, or unusual situations beyond your control.
Key Rules and Requirements for 2016
The 90/100 Rule
Generally, you must prepay through withholding and estimated payments either 90% of the tax shown on your current year return or 100% of the tax shown on your prior year return (which must cover all 12 months). Higher-income taxpayers with 2015 adjusted gross income over $150,000 must use 110% instead of 100%.
Special Categories Have Different Rules
Farmers and fishermen who receive at least two-thirds of their gross income from farming or fishing can pay all estimated tax by January 17, 2017, or file their annual return by March 1, 2017, with full payment. This gives them more flexibility since their income often comes in seasonal patterns.
Self-Employment Tax Considerations
When calculating estimated tax on self-employment income, use only 92.35% of your net profit to account for the deductible portion of self-employment tax. You must also deduct one-half of your self-employment tax when figuring your adjusted gross income.
Joint Payments Prohibited
Unlike U.S. citizens and residents, nonresident aliens cannot make joint estimated tax payments with a spouse, even if married. Each spouse must calculate and pay separately, and you're considered to file separately if you check boxes 3, 4, or 5 on Form 1040NR or box 2 on Form 1040NR-EZ.
Payment Methods
You can pay online through IRS Direct Pay or by credit/debit card, by phone through the Electronic Federal Tax Payment System (EFTPS), or by mailing a check or money order with the payment voucher to the IRS address in Charlotte, North Carolina. Make checks payable to "United States Treasury" and write your identifying number and "2016 Form 1040-ES (NR)" on your payment.
No Reminders Sent
The IRS does not send reminder notices about estimated tax payments. You're responsible for tracking and making timely payments yourself.
Step-by-Step (High Level)
Step 1: Determine If You Must Pay
Use your 2015 tax return as a guide. Calculate your expected 2016 income, deductions, and credits. Figure your estimated tax liability. If you'll owe at least $1,000 after withholding and credits, and your withholding won't cover the required percentage (90% or 100/110% of prior year), you must make estimated payments.
Step 2: Calculate Your Estimated Tax
Complete the 2016 Estimated Tax Worksheet included in the package. Enter your expected adjusted gross income, itemized deductions (or use the personal exemption if higher), and exemptions. Calculate tax using the appropriate 2016 Tax Rate Schedule for your filing status. Add alternative minimum tax if applicable, self-employment tax (if you're covered under a U.S. social security agreement), and other taxes like the Additional Medicare Tax. Subtract expected credits but not withholding.
Step 3: Account for Non-Effectively Connected Income
If you have income not effectively connected with a U.S. trade or business (like certain dividends or interest), multiply this income by 30% or your applicable lower treaty rate. Add this to your effectively connected income tax to get your total estimated tax.
Step 4: Calculate Required Payments
Calculate your new total estimated tax, then determine what remains to be paid across the remaining payment periods. Multiply your total estimated tax by 90% to get one required amount. For the other, use 100% (or 110% for high earners) of your 2015 tax after certain adjustments. Enter the smaller amount as your required annual payment. Subtract any income tax you expect to be withheld during 2016.
Step 5: Make Quarterly Payments
If you have wages subject to U.S. withholding, divide the amount due by four and pay on April 18, June 15, September 15, 2016, and January 17, 2017. If no wages, pay half on June 15, one-quarter on September 15, and one-quarter on January 17. You can skip the January payment if you file your return by January 31, 2017, and pay the full balance. Mail payment vouchers with checks to the Charlotte address or pay electronically.
Step 6: Track Your Payments
Use the Record of Estimated Tax Payments table to track each payment's due date, amount paid, payment method, and any overpayment credit applied from the prior year.
Common Mistakes and How to Avoid Them
Mistake: Using the Wrong Base Year Percentage
Many higher-income taxpayers mistakenly use 100% of prior year tax when they should use 110% because their 2015 adjusted gross income exceeded $150,000. Solution: Check your 2015 AGI before calculating your required payment. If over $150,000 ($75,000 if married filing separately), use 110%.
Mistake: Not Adjusting for Self-Employment Tax Properly
Taxpayers often forget to use only 92.35% of net earnings when calculating self-employment tax, or they fail to deduct half of the self-employment tax from their AGI. Solution: Use the Self-Employment Tax and Deduction Worksheet included on page 4 of the form package. This worksheet guides you through both calculations correctly.
Mistake: Making Joint Payments When Prohibited
Married nonresident aliens sometimes assume they can make joint estimated payments like U.S. residents. Solution: Remember that nonresident aliens cannot make joint estimated tax payments, even if married. Each spouse must calculate and pay separately using their own identifying number.
Mistake: Missing the Annualized Income Method
When income arrives unevenly throughout the year—such as seasonal business income or a large capital gain late in the year—using the regular installment method can result in overpaying early or triggering penalties unnecessarily. Solution: Consider using the annualized income installment method explained in Publication 505, Chapter 2, which matches payment amounts to when you actually earned the income.
Mistake: Forgetting to Account for Treaty Benefits
Nonresident aliens entitled to treaty benefits sometimes calculate estimated tax using standard rates instead of reduced treaty rates. Solution: Review your applicable tax treaty carefully. If you're entitled to reduced rates on certain income, use those rates when calculating your estimated tax on line 15 of the worksheet and complete Schedule OI (Other Information) when filing your annual return.
Mistake: Thinking Estimated Payments Guarantee No Balance Due
Even if you pay the required annual payment, you might still owe additional tax when filing your return if your actual income exceeded your estimate. Solution: Make your estimate as accurate as possible. If circumstances change substantially, amend your estimated payments. For complete accuracy, you can choose to pay 100% of your expected actual tax rather than just the "required annual payment."
Mistake: Missing Name Changes
If you changed your name during the year and made estimated payments under your former name, failing to attach an explanation to your return can delay processing. Solution: Attach a statement to your 2016 return showing all estimated payments you made and the name and identifying number you used for those payments. If you have a Social Security number, notify the Social Security Administration before filing to prevent refund delays.
What Happens After You File Your Payments
Processing and Crediting
When the IRS receives your estimated tax payment, it credits the payment to your account under your identifying number (Social Security Number, Individual Taxpayer Identification Number, or Employer Identification Number for estates/trusts). These payments appear on your account and will be credited against your total tax liability when you file Form 1040NR (or 1040NR-EZ) for 2016. Keep all confirmation numbers from electronic payments or copies of checks and money orders.
Reconciliation on Annual Return
When you file your 2016 Form 1040NR in 2017, you'll report all estimated tax payments on line 62c. The IRS matches these payments against your account. If your total payments (estimated taxes plus any withholding) exceed your tax liability, you'll receive a refund. If payments fall short, you'll owe the difference when you file. You can choose to apply any overpayment to your 2017 estimated tax instead of receiving a refund.
Penalties for Underpayment
If you didn't pay enough estimated tax by each due date, you may owe an underpayment penalty even if you're due a refund when you file your return. The penalty calculates separately for each payment period based on how much you should have paid versus what you actually paid. The penalty is essentially interest on the underpaid amount. The IRS typically calculates this penalty automatically and sends you a bill, though you can calculate it yourself using Form 2210 if you want to see if any exceptions apply.
Exceptions and Waivers
Several circumstances can result in waiver of the underpayment penalty. You won't owe a penalty if your total tax liability is less than $1,000 after withholding, you had no tax liability in the prior year (and were a U.S. resident or citizen for all 12 months), or you meet the safe harbor rules (90/100/110% tests). The penalty may be waived if underpayment resulted from a casualty, disaster, or other unusual circumstance where imposing the penalty would be inequitable. The IRS also may waive penalties for new retirees (age 62 or older) or disabled individuals in certain situations.
Keeping Payment Records
Maintain records of all estimated tax payments for at least three years after filing your return. Keep payment vouchers, canceled checks, bank statements showing electronic payments, or confirmation numbers. These records prove payment if the IRS questions your return and help resolve any discrepancies between what you paid and what the IRS credited to your account.
FAQs
What's the difference between Form 1040-ES (NR) and regular Form 1040-ES?
Form 1040-ES (NR) is specifically for nonresident aliens and has different rules, rates, and calculations than the regular Form 1040-ES used by U.S. citizens and resident aliens. The NR version includes special provisions for income not effectively connected with a U.S. trade or business, different filing status rules, and prohibition on joint payments.
Can I make more frequent payments than quarterly?
Yes, you can make estimated tax payments more frequently than required. To do this, make a copy of an unused payment voucher, fill it in, and mail it with your payment. Make sure the total of your payments during each official payment period equals at least the required amount for that period to avoid underpayment penalties.
What if I don't have a Social Security Number?
If you don't have and aren't eligible for a Social Security Number, use your IRS Individual Taxpayer Identification Number (ITIN) wherever the form requests your SSN. If you don't have an ITIN, apply for one using Form W-7 before making estimated tax payments. For estates and trusts, use the Employer Identification Number (EIN) of the estate or trust.
Do I need to make estimated payments if taxes are withheld from my wages?
Possibly. If you have other income beyond wages (like self-employment income, rental income, or investment income), you might need to make estimated payments even though taxes are withheld from your wages. Calculate whether your total withholding plus estimated payments will meet the 90/100/110% requirement. Alternatively, you can increase your wage withholding by filing a new Form W-4 with your employer, which might eliminate the need for estimated payments.
What happens if I leave the United States during the year?
If you leave the United States and become a nonresident alien during 2016, you'll have a dual-status year. You generally must file Form 1040NR for the portion of the year you were a nonresident. Any estimated payments you made apply to your total tax liability. When you leave, make sure your estimated payments are sufficient to cover tax on all income earned up to your departure. Special rules in Publication 519 explain dual-status situations.
Can I pay estimated taxes for my spouse?
No. Nonresident aliens cannot make joint estimated tax payments even if married. Each spouse must calculate their own estimated tax liability and make separate payments using their own identifying number. This differs from the rules for U.S. citizens and residents, who can make joint estimated payments in certain circumstances.
What if I realize I overpaid or underpaid estimated taxes mid-year?
You can and should adjust your remaining estimated tax payments if your situation changes. Refigure your total estimated tax using the worksheet with your updated information. Determine what you've already paid, then calculate what you should pay for remaining payment periods. If you underpaid earlier, you can increase later payments, though you might owe some penalty on the underpaid periods. If you overpaid, you can reduce or skip later payments. Consider using the annualized income installment method and filing Form 2210 with your return to minimize penalties if income arrived unevenly throughout the year.
Note: This summary is based on the 2016 version of Form 1040-ES (NR). Tax laws change regularly, so always consult the current year's forms, instructions, and IRS publications for the most up-to-date information.
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