Form 1040-ES: Estimated Tax for Individuals (2013)
What Form 1040-ES Is For
Form 1040-ES is the IRS tool that helps you calculate and pay taxes on income that doesn't have taxes automatically withheld throughout the year. Unlike wages from a traditional job where your employer takes out taxes from each paycheck, certain types of income arrive without any taxes removed. This form ensures you pay Uncle Sam as you earn, rather than facing a massive tax bill—and potential penalties—when you file your annual return.
The form applies to income from self-employment, freelance work, contract labor, rental properties, interest, dividends, alimony, capital gains from investments, prizes, awards, and even the taxable portion of unemployment compensation and Social Security benefits. Essentially, if you're receiving money without someone else withholding taxes from it, Form 1040-ES helps you figure out how much you should voluntarily send to the IRS and when to send it. The package includes worksheets to calculate your estimated tax liability and payment vouchers you can mail with checks or money orders. IRS.gov
When You’d Use Form 1040-ES
You must use Form 1040-ES for 2013 if you expect to owe at least $1,000 in tax after subtracting withholding and credits, and your withholding and credits don't cover at least 90% of your current year's tax or 100% of your previous year's tax (whichever is smaller). However, you're off the hook if you had zero tax liability for 2012, were a U.S. citizen or resident for all of 2012, and your 2012 return covered a full twelve months.
The standard payment schedule divides the year into four periods with due dates of April 15, June 17, September 16, 2013, and January 15, 2014. If you realize later that your income estimate was wrong, you can amend your estimated payments. To do this, recalculate your total estimated tax using the worksheet, then figure new payment amounts for the remaining periods. You'll want to avoid underpaying even after an amendment, as penalties can still apply to earlier quarters that were underpaid. You don't have to make the January 15, 2014 payment if you file your complete 2013 tax return by January 31, 2014, and pay all taxes owed at that time. Special rules allow farmers and fishermen to make just one payment by January 15, 2014, or file by March 3, 2014, and pay everything then. IRS.gov
Key Rules or Details for 2013
Several important thresholds and rules govern estimated tax payments. Higher-income taxpayers with 2012 adjusted gross income exceeding $150,000 ($75,000 for married filing separately) must pay 110% of their prior year's tax instead of the standard 100% to avoid penalties. The standard deduction for 2013 is $12,200 for married filing jointly, $8,950 for head of household, and $6,100 for single filers. Personal exemptions increased to $3,900 per person, though this amount phases out for high earners.
Two significant new taxes took effect for 2013 that you must include in your estimated payments: the Additional Medicare Tax of 0.9% on wages and self-employment income above certain thresholds ($250,000 for joint filers, $200,000 for single filers), and the Net Investment Income Tax of 3.8% on the lesser of your net investment income or the amount your modified adjusted gross income exceeds these same thresholds. The social security withholding rate returned to 6.2% for employees (up from the previous year's temporary reduction), applying to wages up to $113,700. Self-employment tax rates returned to 12.4% for Social Security plus 2.9% for Medicare on net self-employment earnings. IRS.gov
You can make payments more frequently than quarterly if that better matches your income pattern—weekly, monthly, or whenever—as long as you've paid enough by each quarterly deadline. Joint estimated payments are allowed for married couples planning to file jointly, but not if either spouse is a nonresident alien, you're separated under a divorce or maintenance decree, or you have different tax years. Registered domestic partners and same-sex spouses in 2013 could not make joint estimated payments and had to track their individual payments separately.
Step-by-Step (High Level)
Start by gathering your 2012 tax return and instructions, as last year's figures provide your baseline for estimating 2013 income and deductions. Use the 2013 Estimated Tax Worksheet included in the Form 1040-ES package to work through the calculations systematically.
Step 1: Estimate your 2013 income and deductions
First, estimate your adjusted gross income for 2013 on line 1, considering any expected changes from 2012 while accounting for new tax law provisions. If you're self-employed, use the separate Self-Employment Tax and Deduction Worksheet to calculate both your self-employment tax and the deduction you can subtract from income. Next, subtract either your estimated itemized deductions or your standard deduction (whichever you'll claim), then subtract your exemptions ($3,900 multiplied by the number of exemptions). This gives you your estimated taxable income.
Step 2: Compute your estimated tax
Apply the appropriate 2013 tax rate schedule for your filing status to calculate your basic income tax. Add any self-employment tax, Additional Medicare Tax, Net Investment Income Tax, or alternative minimum tax you expect to owe. Subtract any tax credits you'll qualify for, such as child tax credit, education credits, or earned income credit. The result is your estimated total tax for the year. Subtract any income tax you expect to have withheld from wages, pensions, or other sources. The remaining balance is what you need to pay through estimated tax payments. IRS.gov
Step 3: Determine your payment schedule and pay
Divide this amount by four to determine your quarterly payment amount (unless you're using the annualized income method for uneven income). You can pay online through IRS Direct Pay, EFTPS, or by credit/debit card; by phone through approved service providers; or by mail using the payment vouchers included with Form 1040-ES. When mailing payments, make checks payable to "United States Treasury," write "2013 Form 1040-ES" and your Social Security number on the check, and send it with the appropriate voucher to the address listed for your state.
Common Mistakes and How to Avoid Them
One of the most costly mistakes is underestimating your income and paying too little estimated tax. Even if you ultimately get a refund when you file your annual return, you can still owe underpayment penalties for the quarters when you didn't pay enough. Review and adjust your estimates after any significant income change—a large contract, capital gain, or unexpected windfall—to avoid this trap. The annualized income installment method can help if your income is uneven throughout the year, allowing you to pay based on actual income received rather than equal quarterly amounts.
Many self-employed individuals forget to multiply their net profit by 92.35% before calculating self-employment tax, leading to inaccurate estimates. Others overlook the 50% deduction for self-employment tax when figuring adjusted gross income. For 2013, don't forget to account for the new Additional Medicare Tax and Net Investment Income Tax if your income crosses the thresholds—these are easy to miss but can result in substantial penalties if ignored.
Married couples sometimes mistakenly send joint vouchers when planning to file separately, or vice versa. Your estimated payment filing status should match your intended annual return filing status. If you change your name during the year, attach a statement to your 2013 return listing all estimated payments and the names and Social Security numbers under which you made them. Without this, the IRS may not credit your payments properly. IRS.gov
Another common error is missing payment deadlines because they don't fall on the last day of each quarter. The June and September deadlines are particularly tricky (June 17 and September 16 in 2013). Mark these dates clearly and remember that if a deadline falls on a weekend or holiday, you have until the next business day. The postmark date counts as the payment date for mailed payments, so don't cut it too close.
Some people needlessly make estimated payments when increasing withholding from wages or pensions would be easier. You can file a new Form W-4 with your employer to have extra tax withheld, or use Form W-4P for pension withholding or Form W-4V for voluntary withholding on government payments. This approach can be simpler than tracking quarterly payments and provides protection against penalties since withholding is treated as paid evenly throughout the year, even if you increase it near year-end.
What Happens After You File
Unlike your annual tax return, estimated tax payments don't generate an immediate response from the IRS. Your payments are credited to your account and held until you file your Form 1040 for the year. When you file your 2013 return in 2014, you'll report the total of all estimated tax payments made on Form 1040, line 26 (or the corresponding line on Form 1040A). The IRS matches these payments to your Social Security number and applies them toward your total tax liability for the year.
If you paid more than your actual tax liability through estimated payments and withholding combined, you'll receive a refund for the difference—or you can elect to apply the overpayment to your 2014 estimated tax. If you underpaid despite making estimated payments, you'll owe the balance when you file, plus you may owe an underpayment penalty calculated on Form 2210. IRS.gov
The underpayment penalty functions like interest on an underpayment and is assessed for each payment period where you didn't pay enough tax. The penalty rate varies by quarter and is based on the federal short-term rate plus percentage points. Even if your underpayment was unintentional, the penalty generally applies automatically. However, the IRS may waive the penalty if you can show the underpayment resulted from a casualty, disaster, or unusual circumstance, or if you retired after age 62 or became disabled during the tax year or the preceding year and the underpayment was due to reasonable cause rather than willful neglect.
You can avoid penalties entirely by ensuring your withholding plus estimated payments equal at least 90% of your 2013 tax or 100% of your 2012 tax (110% if your 2012 adjusted gross income exceeded $150,000). Even if you owe less than $1,000 after subtracting withholding and refundable credits, no penalty applies. For farmers and fishermen, the safe harbor is 66⅔% instead of 90%.
FAQs
Can I make estimated tax payments even if I also have taxes withheld from my paycheck?
Yes, absolutely. Many people have multiple income sources—perhaps a regular job with withholding plus self-employment or rental income on the side. You can make estimated payments to cover the additional tax liability from the non-wage income. Alternatively, you might find it simpler to increase your withholding at your main job by filing a new Form W-4 requesting extra withholding. The advantage of increased withholding is that it's considered paid evenly throughout the year for penalty calculation purposes, even if you increase it late in the year, whereas estimated payments must be timely to avoid penalties for specific quarters.
What if I can't afford to pay the full estimated tax amount by the deadline?
Pay as much as you can by the deadline to minimize penalties and interest. The underpayment penalty is calculated based on how much you owe and for how long, so partial payment is better than no payment. You can also adjust your remaining quarterly payments upward to compensate for an earlier shortfall, though you'll still owe penalties on the underpaid quarter. If you're experiencing financial hardship, the IRS has payment plan options available when you file your annual return, though these don't eliminate underpayment penalties for estimated taxes.
Do I need to make the January 15, 2014 estimated payment if I file my return early?
No. If you file your complete 2013 Form 1040 by January 31, 2014, and pay all tax owed in full with that return, you don't need to make the fourth quarter estimated payment due January 15, 2014. This rule provides flexibility for taxpayers who finish their returns quickly after year-end. Just ensure you actually file and pay by January 31—don't cut it too close and risk missing the deadline, which would result in penalties for the missed estimated payment plus potential late filing and late payment penalties.
How do I calculate estimated tax if my income varies significantly from month to month?
You can use the annualized income installment method, which allows you to calculate estimated tax based on income actually received through each payment period rather than dividing your annual income into four equal parts. This method requires more complex calculations using worksheets in IRS Publication 505 and filing Form 2210 with Schedule AI when you submit your annual return. The benefit is potentially lower or eliminated penalties when your income arrives unevenly—for example, if you're a seasonal business owner or realize a large capital gain late in the year. You must show that your uneven estimated payments matched up with income received unevenly throughout the year.
Can married couples make joint estimated tax payments if they plan to file a joint return?
Generally yes, married couples planning to file jointly can make joint estimated payments using combined vouchers. List both names and Social Security numbers on the voucher in the same order you'll use on your joint return. However, joint estimated payments are not allowed if either spouse is a nonresident alien, if you're separated under a divorce or separate maintenance decree, or if you have different tax years. In 2013, registered domestic partners and same-sex spouses could not file joint estimated payments and had to track their payments separately, with each partner only claiming credit for the payments they individually made.
What should I do if I made estimated payments under my old name but changed my name during the year?
Attach a statement to the front of your 2013 tax return showing all estimated tax payments you and your spouse (if filing jointly) made during 2013, along with the names and Social Security numbers under which you made each payment. This ensures the IRS properly credits all your payments even though different names or numbers were used. Additionally, report your name change to the Social Security Administration before filing your return by calling 1-800-772-1213. This prevents processing delays and protects your future Social Security benefits. The IRS computer systems match payments by Social Security number, so providing complete information about name changes helps avoid payment crediting errors.
Are there penalties for paying estimated tax late, and can they be waived?
Yes, the IRS assesses an underpayment penalty if you didn't pay enough tax by each quarterly deadline, calculated based on the underpayment amount and how many days it remained unpaid. The penalty applies even if you ultimately receive a refund when filing your annual return. However, penalties may be waived if the underpayment resulted from a casualty, disaster, or other unusual circumstance making it inequitable to impose the penalty, or if you retired after reaching age 62 or became disabled during the tax year or preceding year and the underpayment was due to reasonable cause, not willful neglect. Request a waiver by following instructions in the Form 2210 instructions when you file your return. IRS.gov
Sources: All information in this guide comes exclusively from official IRS sources, including the 2013 Form 1040-ES and instructions, IRS.gov estimated tax guidance, Publication 505, and IRS Frequently Asked Questions on estimated tax available at IRS.gov.
