Form 1040-ES: Estimated Tax for Individuals (2015)
What Form 1040-ES Is For
Form 1040-ES is the IRS tool that helps individuals calculate and pay estimated taxes throughout the year on income that isn't subject to automatic withholding. Think of it as the pay-as-you-go system for people who don't have taxes taken out of every paycheck. When you earn money from self-employment, freelancing, running a business, receiving rental income, interest, dividends, alimony, or other sources without withholding, you typically need to make quarterly tax payments directly to the IRS instead of waiting until April to settle up.
The form serves two main purposes. First, it includes worksheets that help you estimate how much tax you'll owe for the year based on your expected income, deductions, and credits. Second, it provides payment vouchers you can mail with checks or money orders if you choose to pay by mail rather than electronically. The 2015 version includes the Estimated Tax Worksheet, tax rate schedules, and instructions to guide you through calculating your liability. The form essentially prevents a large, potentially unaffordable tax bill at year-end while helping you avoid underpayment penalties that kick in when you haven't paid enough tax during the year.
When You’d Use Form 1040-ES
You generally must make estimated tax payments for 2015 if you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits, and your withholding and credits will be less than the smaller of either 90% of your 2015 tax liability or 100% of your 2014 tax liability (your 2014 return must cover all 12 months). However, if your 2014 adjusted gross income exceeded $150,000 ($75,000 if married filing separately in 2015), that 100% threshold jumps to 110% of your prior year's tax—a higher income taxpayer rule designed to ensure adequate payment.
You don't need to make estimated payments if you had no tax liability for 2014 (your total tax was zero or you didn't need to file). Special rules apply to farmers and fishermen (who can substitute 66⅔% for 90%), and certain household employers need to include household employment taxes in their calculations. Late or amended payments work the same way as initial calculations: if your income, deductions, or credits change during the year, you simply complete a new worksheet to recalculate your remaining quarterly payments. The IRS doesn't require you to file an "amended" Form 1040-ES—you just adjust your next payment amounts based on updated projections.
Key Rules for 2015
Payment Schedule
Payment Schedule: Estimated tax payments for 2015 are due quarterly on April 15, June 15, September 15, and January 15, 2016. You can skip the January payment if you file your complete 2015 tax return and pay the entire balance by February 1, 2016. The IRS allows flexibility in payment frequency—you can pay weekly, monthly, or however often you like, as long as you've paid enough by each quarterly deadline.
Safe Harbor Protection
Safe Harbor Protection: To avoid penalties, you need to pay the lesser of (1) 90% of your current year's tax, or (2) 100% of last year's total tax (110% if your prior-year AGI exceeded $150,000). These "safe harbor" thresholds protect you from penalties even if you end up owing more when you file. Meeting either threshold means no penalty applies, regardless of your final tax bill.
Personal Exemptions and Deductions
Personal Exemptions and Deductions: The 2015 personal exemption is $4,000 per person, though it phases out for taxpayers with adjusted gross incomes above $154,950. Similarly, itemized deductions may be reduced at that same income threshold. Standard deductions for 2015 are $12,600 for married filing jointly, $9,250 for head of household, and $6,300 for single or married filing separately. Additional amounts apply if you're 65 or older or blind.
Self-Employment Considerations
Self-Employment Considerations: If you have self-employment income, you must account for self-employment tax (Social Security and Medicare taxes) in your estimated payments. For 2015, the Social Security tax applies to the first $118,500 of net self-employment earnings. When calculating estimated tax, use 92.35% of your net self-employment income, and remember you can deduct half of your self-employment tax when figuring adjusted gross income.
Step-by-Step (High Level)
Step 1: Gather Your Information
Step 1: Gather Your Information. Pull out your prior year's tax return (2014 for tax year 2015) and supporting documents. You'll need last year's return as a baseline, information about expected income for the current year, anticipated deductions, and any credits you qualify for.
Step 2: Complete the Estimated Tax Worksheet
Step 2: Complete the Estimated Tax Worksheet. Work through the worksheet included in Form 1040-ES to project your adjusted gross income, calculate expected deductions (itemized or standard), subtract personal exemptions, and apply the appropriate tax rate schedules. Factor in self-employment tax if applicable, plus other taxes like Additional Medicare Tax or Net Investment Income Tax. Subtract expected credits to arrive at your total estimated tax liability.
Step 3: Calculate Required Payment Amount
Step 3: Calculate Required Payment Amount. Compare your estimated tax to the safe harbor thresholds (90% of current year or 100%/110% of prior year). Determine whether you actually need to make estimated payments—if you owe less than $1,000 after withholding, you're exempt from the requirement. If payments are required, divide your total estimated tax (minus any withholding) by four to get your quarterly payment amount.
Step 4: Submit Payments
Step 4: Submit Payments. Choose your payment method. You can pay online through IRS Direct Pay (free bank transfer), by debit or credit card (convenience fees apply), by phone through EFTPS or card services, or by mailing checks with the payment vouchers to the appropriate IRS address based on your state. Make sure payments are postmarked or processed by the quarterly due dates.
Step 5: Adjust as Needed
Step 5: Adjust as Needed. If your income changes significantly during the year—perhaps you earn more or less than expected, or you have a large capital gain—recalculate your estimated tax using a fresh worksheet and adjust your remaining quarterly payments accordingly. You can use the annualized income installment method to match payments to when income actually arrives, which is particularly helpful if your earnings are seasonal or uneven.
Common Mistakes and How to Avoid Them
Underestimating Income Growth
Underestimating Income Growth: Many taxpayers base their estimated payments solely on last year's income without accounting for raises, new income sources, or investment gains. If your income increases during the year, your initial calculations will be too low. To avoid this, monitor your actual income quarterly and recalculate payments when you notice you're earning more than projected. It's better to slightly overpay and get a refund than to underpay and face penalties.
Forgetting Self-Employment Tax
Forgetting Self-Employment Tax: People new to self-employment often calculate only income tax and forget that they must also pay both the employer and employee portions of Social Security and Medicare taxes—currently 15.3% of net self-employment income up to the Social Security wage base. Use the Self-Employment Tax and Deduction Worksheet included with Form 1040-ES to properly calculate this obligation and include it in your quarterly payments.
Missing the Safe Harbor for Higher Earners
Missing the Safe Harbor for Higher Earners: If your prior-year AGI exceeded $150,000, you must pay 110% of last year's tax to qualify for the prior-year safe harbor, not just 100%. Missing this rule means you might underpay thinking you've met the threshold when you haven't. Always check whether the higher-income rules apply to your situation before settling on a payment strategy.
Not Accounting for Withholding
Not Accounting for Withholding: Some taxpayers calculate estimated tax payments based on total expected liability without subtracting taxes already being withheld from other income sources like part-time W-2 jobs, pensions, or Social Security. This leads to overpayment. Remember to estimate your total withholding for the year and subtract it before dividing the remainder into quarterly payments. You can also increase withholding from wages rather than making separate estimated payments if that's more convenient.
Assuming Equal Quarterly Payments Are Always Required
Assuming Equal Quarterly Payments Are Always Required: While the IRS divides estimated tax into four equal payments for simplicity, you're not locked into that structure. If you receive most of your income late in the year—say from a year-end bonus or capital gain—you can use the annualized income installment method to pay less in early quarters and more when the income actually arrives. This prevents overpaying early in the year and reduces penalties if your income is seasonal.
What Happens After You File
Form 1040-ES isn't technically "filed" with the IRS in the same way your annual return is. Instead, you keep the worksheets for your records and submit only the payments (either electronically or with paper vouchers). The IRS records each payment under your Social Security number and credits them to your account. These payments appear on your tax transcript and are applied against your final tax liability when you file your annual Form 1040.
When you complete your 2015 Form 1040 in early 2016, you'll report all estimated tax payments you made during the year. The IRS will calculate whether you've overpaid or underpaid. If you overpaid, you can choose to receive the excess as a refund or apply it toward your 2016 estimated tax liability. If you underpaid, you'll owe the balance plus potential penalties and interest depending on how much you owed and when you paid it.
Penalty Assessment: If you didn't pay enough estimated tax or paid it late, the IRS will calculate an underpayment penalty based on the amount short, the time period of underpayment, and quarterly interest rates. The penalty is computed for each quarter separately, so paying late in one quarter doesn't necessarily trigger penalties for quarters where you paid correctly. The IRS typically calculates this penalty for you and sends a bill—you don't have to figure it yourself unless you want to include it with your return using Form 2210.
Penalty Waivers: While the underpayment penalty generally cannot be waived for "reasonable cause" alone, the IRS may waive or reduce it if the underpayment resulted from a casualty, disaster, or other unusual circumstance where imposing the penalty would be unfair. You may also qualify for relief if you or your spouse retired after age 62 or became disabled in the past two years and had reasonable cause for underpayment. Additionally, if you had most income tax withheld early in the year or your income varied significantly, completing Form 2210 and Schedule AI might reduce or eliminate the penalty.
IRS: Underpayment of Estimated Tax Penalty
FAQs
Can I pay all my estimated tax at once instead of quarterly?
Yes. You can pay your entire estimated tax liability by April 15 (the first due date) if you prefer. Making one large payment satisfies your obligation for the entire year as long as you pay enough to meet the safe harbor thresholds. However, if your income arrives evenly throughout the year, paying quarterly better matches your tax payments to when you actually earn the income.
What if I start earning income that requires estimated payments partway through the year?
If you don't have income subject to estimated tax until after March 31, you should calculate payments using the annualized income installment method explained in IRS Publication 505. This method accounts for when you actually started earning income and prevents penalties for early quarters when you had no income requiring estimated payments. File Form 2210 including Schedule AI with your tax return to show you properly calculated installments based on when income arrived.
Do I have to use the IRS payment vouchers, or can I pay online?
You can pay electronically through IRS Direct Pay (free direct transfer from your bank account), by debit or credit card (service provider charges convenience fees), or through the Electronic Federal Tax Payment System (EFTPS) after enrolling. Electronic payment is generally faster and more convenient. You only need to mail the paper vouchers if you're paying by check or money order.
What happens if my name changed due to marriage or divorce?
If you changed your name and made estimated payments under your former name, attach a statement to your paper tax return showing all estimated payments you made and the names and Social Security numbers under which you made them. More importantly, report your name change to the Social Security Administration before filing your return to avoid processing delays and ensure your future Social Security benefits are properly credited.
How do I fix an error if I realize I calculated my estimated tax wrong?
Simply complete a new Estimated Tax Worksheet to recalculate your total estimated tax, then adjust your remaining quarterly payments accordingly. If you underpaid in earlier quarters, you can make up the difference in later payments, though you might still owe a penalty for the period of underpayment. If you overpaid earlier, you can reduce later payments or skip them entirely if you've already paid enough to avoid penalties.
Can married couples make joint estimated tax payments?
Yes, married couples can make joint estimated payments, but only if both spouses are U.S. citizens or resident aliens, you're not separated under a decree of divorce or separate maintenance, and you both use the same tax year. You cannot make joint estimated payments if either spouse is a nonresident alien. Additionally, individuals in same-sex or opposite-sex registered domestic partnerships or civil unions that aren't marriages under state law cannot make joint estimated payments—each person can only take credit for the payments they individually made.
Do farmers and fishermen follow different rules?
Yes. If at least two-thirds of your gross income comes from farming or fishing, you can either (1) make one estimated payment by January 15, 2016, covering your entire 2015 liability, or (2) skip estimated payments entirely and file your complete return with full payment by March 1, 2016. Farmers and fishermen also use 66⅔% instead of 90% in the safe harbor calculation, making the requirement easier to meet.
Related IRS Resources:
- Form 1040-ES (2015)
- Publication 505: Tax Withholding and Estimated Tax
- Estimated Tax Payment Information
