What Form 1040-ES 2013 Is For
IRS Form 1040-ES (2013) helps individuals calculate and make estimated tax payments when federal income tax is not automatically withheld from their paychecks. Most taxpayers who receive income outside traditional employment wages use this form to determine how much tax they need to send to the Internal Revenue Service throughout the tax year. The form guides taxpayers through estimating taxable income, calculating total tax, and determining how much to pay each quarter.
The form applies to individuals who receive income without withholding, including earned income from self-employment, independent contractors, rental properties, capital gains, dividends, interest, Social Security benefits, and other types of income. Taxpayers use the worksheets to calculate adjusted gross income, apply federal tax rates, and determine estimated payments for the year. The form also includes payment vouchers for those who prefer to pay by mail rather than using electronic tools such as IRS Direct Pay.
For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions, see our comprehensive guide for Form 1040-ES: Estimated Tax for Individuals (2013).
When You’d Use Form 1040-ES
Individuals use Form 1040-ES when they expect to owe at least $1,000 in total tax after subtracting federal income tax withholding and credits. Estimated tax is required when withholding and credits are not enough to cover income taxes for the tax year. Taxpayers must make estimated payments if their withholding will not cover at least 90 percent of the tax shown on their current tax return or 100 percent of the tax from the previous year.
Taxpayers may need the form if they receive income that does not have withholding, such as self-employment earnings, unemployment benefits, dividends, interest, or capital gains. The form is also used when individuals need to pay estimated taxes after adjusting itemized deductions or receiving additional income mid-year. Those filing late or correcting prior-year estimates may adjust their remaining estimated payments using the annualized income method, which allows for unequal payments based on when they receive income.
Key Rules or Details for 2013
For the 2013 tax year, taxpayers calculated estimated tax based on total income, taxable income, and federal income tax rates. Individuals with adjusted gross income above $150,000, or $75,000 for married filing separately, needed to pay 110 percent of their prior year tax liability to avoid an estimated tax penalty. Income from self-employment, investments, capital gains, and Social Security benefits required careful review when determining estimated payments. Credits such as the child tax credit, nonrefundable credit options, and refundable credit amounts helped reduce total tax.
Two key tax changes affected how individuals make estimated tax payments for 2013. The Additional Medicare Tax applies to high-earned income, while the Net Investment Income Tax applies to investment income for taxpayers who exceed income thresholds. Taxpayers needed to evaluate whether to claim itemized deductions or the standard deduction and ensure that enough income taxes were paid to avoid penalties. Many relied on IRS Publication 505 or guidance from a tax professional to determine the amount of tax they owed.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide for Individual Schedules.
Step-by-Step (High-Level)
Step 1: Gather information from the previous year
Taxpayers gather the previous year’s tax return to help estimate current-year income, deductions, and credits. The prior year return helps determine how much tax may be owed and whether withholding and estimated tax will be enough to avoid penalties.
Step 2: Estimate total income
Taxpayers estimate their total income for 2013, which includes earned income, self-employment income, investment income, other income, and state and local taxes paid. They calculate gross income and adjust for deductions and credits.
Step 3: Determine taxable income
Taxpayers subtract itemized deductions or the standard deduction, then subtract exemptions to determine taxable income. This step helps determine the amount of tax they will owe based on the federal tax rates for the tax year.
Step 4: Calculate total tax
Taxpayers apply federal income tax rules, include self-employment tax when required, and add other taxes such as the alternative minimum tax. They also factor in credits such as the Child Tax Credit, tax credit options, and refundable credit amounts.
Step 5: Subtract income tax withheld
Taxpayers subtract income tax withheld from employment wages and any withholding from pensions or government payments. This provides the amount they need to pay for estimated taxes.
Step 6: Divide the estimated tax into payments
Taxpayers divide the remaining tax by four to determine quarterly tax payments, unless they use the annualized income method for unequal payments. They may choose to pay electronically through IRS Direct Pay or use mailed vouchers.
Common Mistakes and How to Avoid Them
- Many taxpayers underestimate their income and, consequently, their tax liability. They can prevent this by reviewing their income frequently and increasing estimated payments when they earn additional income.
- Many taxpayers mistakenly assume withholding adjustments will cover fluctuating income. They can avoid penalties by using the tax withholding estimator to check how much tax they need to pay.
- Taxpayers sometimes forget to include self-employment tax when calculating estimated tax. They can avoid underpayment by using the worksheets provided in Form 1040-ES to calculate tax accurately.
- Some taxpayers fail to adjust their estimated payments after experiencing changes in income. They can prevent penalties by recalculating estimated payments when income increases or decreases significantly.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
The Internal Revenue Service credits estimated payments to the taxpayer’s online account and applies them when the taxpayer files the income tax return. The costs remain on the account until the return is processed and the IRS applies payments to the total tax shown on the return.
If taxpayers pay more than their total tax liability, they may receive a tax refund or apply the overpayment to their next tax year. If they pay less, they owe money and may face an estimated tax penalty. The IRS may waive this penalty if the underpayment occurred due to another unusual circumstance, a disaster, or willful neglect beyond the taxpayer’s control.
FAQs
Who must make estimated tax payments?
Individuals who expect to owe at least $1,000 in tax after withholding and credits must make estimated tax payments for the year.
Can taxpayers avoid penalties by increasing withholding?
Yes, increasing federal income tax withholding through employment wages or pensions can help taxpayers avoid penalties for underpayment of taxes.
How should taxpayers handle unequal payments?
They may use the annualized income method to make payments that reflect when they actually receive income.
Can self-employed individuals use Form 1040-ES?
Yes, self-employed individuals use this form to calculate estimated payments on earnings not subject to withholding.
Can taxpayers pay estimated taxes online?
Yes, taxpayers can pay estimated taxes using IRS Direct Pay for fast and secure electronic payments.
Are estimated payments required for capital gains?
Yes, taxpayers who receive income from capital gains may need to make estimated payments to avoid penalties.
For more resources on filing or understanding other IRS forms, visit our Form Summaries and Guides Library.
