Form 1040-ES (NR): U.S. Estimated Tax for Nonresident Alien Individuals
What Form 1040-ES (NR) Is For
Form 1040-ES (NR) is the estimated tax package that nonresident aliens use to calculate and pay quarterly estimated taxes on income earned in the United States. If you're a nonresident alien—meaning you don't pass the green card test or substantial presence test—and you have U.S.-source income that isn't subject to withholding, this is the form that helps you stay current with your tax obligations throughout the year. IRS.gov
Estimated tax is essentially the method of paying tax on income as you earn it, rather than waiting until the end of the year. This applies to income that doesn't have automatic tax withholding, such as self-employment income, business income, rental income, interest, dividends, alimony, prizes, and awards. The form includes a worksheet to help you figure your expected tax liability, tax rate schedules specific to nonresident aliens, and payment vouchers to mail with your quarterly payments.
The package is designed for nonresident alien individuals, but can also be used by nonresident alien estates or trusts (which should also reference Form 1041-ES for additional guidance). It's important to understand that as a nonresident alien, you're generally taxed only on income from U.S. sources and income effectively connected with a U.S. trade or business. Income not effectively connected with a U.S. trade or business is typically taxed at a flat 30 percent rate (or lower treaty rate if applicable), while income effectively connected with a trade or business is taxed at graduated rates similar to U.S. citizens.
When You’d Use Form 1040-ES (NR) (Including Late/Amended Filing)
General Filing Requirements for 2010
You must make estimated tax payments for 2010 if two conditions are met: First, you expect to owe at least $1,000 in tax after subtracting your withholding and refundable credits. Second, you expect your withholding and certain refundable credits to be less than the smaller of either 90 percent of the tax shown on your 2010 tax return, or 100 percent of the tax shown on your 2009 tax return (your 2009 return must cover all 12 months). IRS.gov
Special Rules for Farmers, Fishermen, and Higher-Income Taxpayers
There are special rules for certain taxpayers. If you're a farmer or fisherman and at least two-thirds of your gross income comes from farming or fishing, you only need to prepay 66⅔ percent (instead of 90 percent) of your expected tax. Higher-income taxpayers—those with adjusted gross income above $150,000 on their 2009 return ($75,000 if married filing separately)—must substitute 110 percent for 100 percent when looking at prior year tax.
Changing or Amending Your Estimated Tax During the Year
If you discover during the year that you need to change your estimated tax payments—perhaps because your income increased unexpectedly or you had a large capital gain—you should amend your estimated tax. To do this, refigure your total estimated tax using the worksheet in the form package, then calculate the payment due for each remaining payment period. The IRS doesn't send reminder notices for estimated tax payments, so it's your responsibility to make each payment by the due date. If you realize you underpaid in earlier quarters, you may owe a penalty when you file your return, even if you increase your later payments.
There's no separate "amended" form for estimated tax. You simply recalculate using the worksheet and adjust your future payments accordingly. If you paid too little in earlier quarters and can't make up the difference, you might reduce or eliminate penalties by using the annualized income installment method, which accounts for uneven income throughout the year. This method is particularly helpful if you operate a seasonal business or receive large payments late in the year.
Key Rules or Details for 2010
Payment Due Dates and Schedules
The payment due dates are critical and different depending on whether you have wages subject to U.S. income tax withholding. If you do have wages with withholding, you can pay all your estimated tax by April 15, or make four equal payments: April 15 (first payment), June 15 (second payment), September 15 (third payment), and January 18, 2011 (fourth payment). You don't have to make the January payment if you file your 2010 Form 1040-NR or 1040-NR-EZ by January 31, 2011, and pay the entire balance due with your return. IRS.gov
If you don't have wages subject to U.S. income tax withholding, you can pay all estimated tax by June 15, 2010, or make three installments: half by June 15, one-quarter by September 15, and one-quarter by January 18, 2011. Again, the January payment isn't required if you file and pay by January 31, 2011.
Rules for Married Nonresident Aliens and Joint Payments
Married taxpayers have special considerations. You generally must use Tax Rate Schedule Y if married, though exceptions exist in Publication 519. You can't make joint estimated tax payments if you or your spouse is a nonresident alien, you're separated under a divorce or separate maintenance decree, or you and your spouse have different tax years.
Using Withholding Instead of Estimated Payments
Another important rule: you can increase your withholding instead of making estimated payments. If you also receive wages, you may avoid estimated tax payments on your other income by asking your employer to withhold more tax from your earnings using Form W-4. This can be simpler than tracking quarterly payments.
Nonresident Exemptions, Deductions, and Credits
Personal exemptions and standard deduction amounts differ from those available to U.S. residents, and certain tax benefits available to residents may not apply to nonresident aliens. Always consult the Form 1040-NR instructions and Publication 519 to understand which deductions and credits you can claim.
Step-by-Step (High Level)
Step 1: Use Your Prior-Year Return as a Baseline
Start by gathering your 2009 tax return (Form 1040-NR or 1040-NR-EZ) to use as a baseline for projecting your 2010 income. The estimated tax worksheet walks you through the calculation in a logical sequence.
Step 2: Estimate 2010 Income, Deductions, and Exemptions
First, estimate your adjusted gross income for 2010 (line 1). Next, subtract your estimated itemized deductions (line 2)—use your 2009 instructions as a guide—and then subtract your exemptions by multiplying $3,650 by your number of personal exemptions (lines 3-4). This gives you your taxable income (line 5). Calculate the tax on this amount using the appropriate 2010 Tax Rate Schedule provided in the package. Nonresident aliens use different schedules depending on filing status: Schedule X (Single), Schedule Y (Married filing separately), Schedule Z (Qualifying widow or widower), or Schedule W (Estate or Trust).
Step 3: Figure Your 2010 Estimated Tax
Add any alternative minimum tax from Form 6251 and other taxes you expect to owe (lines 7-8, 11). Subtract any credits you expect to claim (line 9) to arrive at your estimated tax on income effectively connected with a U.S. trade or business (line 12). If you have income not effectively connected with a U.S. trade or business, enter that amount (line 13) and multiply it by 30 percent or your lower treaty rate (line 14). Add these together, subtract refundable credits, and you have your total 2010 estimated tax (line 15c).
Step 4: Determine Required Annual Payment and Installments
Next, calculate your required annual payment to avoid penalties. Multiply your total estimated tax by 90 percent (66⅔ percent for farmers/fishermen), and compare this to the tax shown on your 2009 return—or 110 percent of that amount if you're a higher-income taxpayer (lines 16a-c). You must prepay at least the smaller of these two amounts.
Subtract any income tax you expect to be withheld during 2010 plus any amount paid with Form 1040-C (line 17). If the result is zero or less, you don't need to make estimated payments. If it's less than $1,000, you also don't need to make estimated payments. Otherwise, calculate your required payment for each period (line 19), typically one-quarter of the required annual amount for each payment period, reduced by any 2009 overpayment you're applying.
Common Mistakes and How to Avoid Them
Misclassifying Effectively Connected vs. Non-Effectively Connected Income
One frequent mistake is miscalculating which income requires estimated tax payments. Nonresident aliens must distinguish between income effectively connected with a U.S. trade or business (taxed at graduated rates) and income not effectively connected (typically taxed at a flat 30 percent or treaty rate). Incorrectly categorizing income leads to underpayment or overpayment. Review Publication 519 carefully to understand income sourcing rules and what constitutes effectively connected income.
Missing or Confusing Payment Deadlines
Another common error is missing payment deadlines or confusing the payment schedules. Remember that if you have wages subject to withholding, your schedule differs from those without wage withholding. Mark all due dates on your calendar as soon as you determine you need to make estimated payments. A postmark by the due date counts as timely payment, but waiting until the last minute risks postal delays.
Overlooking Tax Treaty Benefits
Many nonresident aliens forget to consider tax treaty benefits when calculating estimated tax. If your home country has a tax treaty with the United States, you may be entitled to reduced withholding rates or exemptions on certain types of income. Failing to account for treaty benefits causes you to overpay estimated tax. Conversely, claiming treaty benefits you're not entitled to leads to underpayment and penalties.
Incorrect Joint Estimated Payments for Married Nonresident Aliens
Married nonresident aliens sometimes incorrectly attempt to file joint estimated tax payments with a spouse who is also a nonresident alien, or with a spouse who is a U.S. citizen or resident but has a different tax year. Joint estimated payments aren't allowed in these situations—each person must make separate payments.
Failing to Update Estimates After Financial Changes
Some taxpayers fail to amend their estimated tax when circumstances change during the year. If you receive a large windfall, change jobs, start a business, or experience other significant financial changes, recalculate your estimated tax obligation promptly and adjust future payments. While this may not eliminate penalties for earlier quarters, it prevents the underpayment from growing.
Identification Number and Recordkeeping Errors
Finally, don't forget to report the correct identifying number—either your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)—on all payment vouchers and keep accurate records of when and how much you paid. Mismatched or missing identification numbers cause your payments to be misapplied, creating unnecessary complications when you file your annual return.
What Happens After You File
How the IRS Processes Your Estimated Payments
After you mail your estimated tax payments with the payment vouchers, the IRS processes and credits them to your account. You won't receive acknowledgment or receipts for payments made by check or money order unless you specifically request them. If you pay electronically through the Electronic Federal Tax Payment System (EFTPS) or by credit/debit card, you'll receive a confirmation number—keep these records for your files.
The IRS does not send reminder notices about estimated tax payment due dates, so the responsibility falls entirely on you to track and make timely payments. Maintain your own record of payments using the Record of Estimated Tax Payments included in the form package. This helps you reconcile your payments when you prepare your annual Form 1040-NR or 1040-NR-EZ.
Underpayment Penalties and Possible Waivers
If you underpay your estimated tax—either by paying too little or paying late—you may owe an underpayment penalty when you file your annual return. This penalty is calculated for each underpayment period based on how long the underpayment remained unpaid and is assessed using current interest rates. The penalty may apply even if you receive a refund when you file your return, because it's calculated separately for each payment period.
The penalty can be waived under certain circumstances, such as casualty, disaster, or other unusual circumstances where it would be inequitable to impose the penalty, or if you retired (after reaching age 62) or became disabled during the tax year and the underpayment was due to reasonable cause rather than willful neglect. Chapter 4 of Publication 505 provides detailed information about penalty waivers.
Reconciling Payments on Your Annual Nonresident Return
When you file your 2010 Form 1040-NR or 1040-NR-EZ, you'll report your estimated tax payments on the appropriate line. The IRS will match the payments to your return using your identifying number. If you paid more than you owe, you can choose to have the overpayment refunded or credited toward your 2011 estimated tax. If you paid less than you owe, you'll need to pay the balance due, plus any underpayment penalty if applicable.
If you changed your name during 2010 and made estimated tax payments under your former name, attach a statement to your annual return showing all payments made and the name and identifying number used for those payments. This ensures proper credit for your payments.
FAQs
Can I pay all my estimated tax at once instead of making quarterly payments?
Yes, if you have wages subject to U.S. income tax withholding, you can pay your entire estimated tax by April 15, 2010. If you don't have wages subject to withholding, you can pay the entire amount by June 15, 2010. While you're not required to split payments into quarters, many taxpayers find it easier to manage their cash flow by making smaller quarterly payments. IRS.gov
What if I don't have a Social Security Number?
If you don't have and aren't eligible to obtain a Social Security Number, you must apply for an Individual Taxpayer Identification Number (ITIN) from the IRS. Use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply. Once you receive your ITIN, use it on all tax forms and payment vouchers where an identifying number is required. Visit IRS.gov and search for "ITIN" for detailed application information.
How do I know if I'm a nonresident alien for tax purposes?
Your tax residency status depends on the green card test and the substantial presence test, not your immigration status. You're generally a nonresident alien if you don't have a U.S. green card and don't meet the substantial presence test (which involves counting days present in the U.S. over a three-year period). Publication 519, U.S. Tax Guide for Aliens, provides a comprehensive explanation of these tests and includes worksheets to help you determine your status. Your tax status can differ from your immigration status.
Can I pay my estimated tax electronically instead of mailing checks?
Absolutely. The IRS encourages electronic payment through the Electronic Federal Tax Payment System (EFTPS) or by credit/debit card through authorized service providers. Electronic payments are secure, provide confirmation numbers, and eliminate concerns about checks being lost in the mail. With EFTPS, you can schedule payments up to 365 days in advance. Keep in mind that credit/debit card payments incur convenience fees charged by the service provider, which you can deduct as a miscellaneous itemized deduction on your return.
What happens if my income changes significantly during the year?
If your income increases or decreases substantially, you should refigure your estimated tax obligation and adjust your remaining payments. Calculate your new total estimated tax using the worksheet, then determine how much you still need to pay over the remaining payment periods. If your income varies significantly throughout the year—for example, due to seasonal business or a large year-end capital gain—consider using the annualized income installment method explained in Publication 505, which may reduce or eliminate underpayment penalties by accounting for when you actually received the income.
Do I need to make estimated tax payments if my employer withholds taxes from my wages?
Maybe. Even if you have withholding from wages, you may still need to make estimated tax payments if you have substantial income from other sources that isn't subject to withholding. Review the General Rule in the form instructions: you need to make estimated payments if you expect to owe at least $1,000 after subtracting withholding and credits, and your withholding and credits will be less than the smaller of 90 percent of your current year tax or 100 percent (or 110 percent if higher income) of your prior year tax. Alternatively, consider asking your employer to increase your withholding by filing a new Form W-4, which may eliminate the need for estimated payments.
As a nonresident alien, am I entitled to tax treaty benefits?
If your home country has an income tax treaty with the United States, you may be entitled to reduced tax rates or exemptions on certain types of income. Common treaty benefits include reduced withholding rates on dividends, interest, and royalties, or exemptions for certain employment income. To claim treaty benefits, you typically need to provide Form W-8BEN (or other appropriate Form W-8) to payers of the income. When calculating estimated tax, factor in any treaty benefits you're entitled to claim. Review the specific treaty between the U.S. and your country, or consult Publication 901, U.S. Tax Treaties, for guidance.
Note: This summary is based on the 2010 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.
