Form 1040-ES(NR): U.S. Estimated Tax for Nonresident Alien Individuals – A Plain-English Guide
Form 1040-ES(NR) is the package nonresident aliens use to calculate and pay estimated taxes throughout the year on income that isn't subject to withholding. Think of it as the IRS's "pay-as-you-go" system for people who aren't U.S. citizens or residents but earn certain types of U.S.-source income. Instead of paying all your taxes at once when you file your annual return, you make quarterly payments based on what you expect to owe.
What Form 1040-ES(NR) Is For
This form serves nonresident aliens who receive income effectively connected with a U.S. trade or business that isn't subject to tax withholding. The form helps you calculate how much estimated tax you should pay and provides payment vouchers to submit with your quarterly payments. Nonresident aliens use this instead of the regular Form 1040-ES that U.S. citizens and resident aliens use.
The form includes a worksheet to estimate your annual tax liability, instructions for calculating quarterly payments, four payment vouchers (one for each quarterly due date), and tax rate schedules specific to nonresident aliens. You'll use your prior year's tax return as a starting point, then adjust for expected changes in income, deductions, and credits for the current year.
Estimated tax payments cover not only regular income tax but also self-employment tax if you're self-employed. The system ensures the government receives tax revenue throughout the year rather than waiting until you file your annual return. This approach mirrors how employees have taxes withheld from each paycheck.
When You’d Use Form 1040-ES(NR) (Filing Late or Amended Situations)
General Thresholds and Safe Harbor Tests
You must make estimated tax payments if you expect to owe at least one thousand dollars in tax after subtracting withholding and refundable credits, and your withholding and credits will be less than the smaller of ninety percent of your current year's tax or one hundred percent of your prior year's tax. For higher-income taxpayers whose prior-year adjusted gross income exceeded one hundred fifty thousand dollars (seventy-five thousand if married filing separately), the prior-year percentage increases to one hundred ten percent.
Different Schedules With or Without Wage Withholding
If you don't have wages subject to U.S. withholding, your payment schedule differs from those who do. With wage withholding, you make four equal payments on April 15, June 15, September 15, and January 15. Without wage withholding, you pay half by June 15, one-quarter by September 15, and one-quarter by January 15. You can avoid the January payment entirely by filing your annual return and paying the full balance by January 31.
Adjusting or Amending Estimated Tax During the Year
When your income changes during the year—perhaps you start a business, receive a large capital gain, or your income increases substantially—you can amend your estimated tax by recalculating your total annual payment and adjusting remaining installments accordingly. To amend, refigure line 19a of the Estimated Tax Worksheet and see Publication 505 for calculating amended installment amounts. If a previous period's payment was less than one-fourth of your amended estimate, you might owe an underpayment penalty when filing your return.
Late Payments and Penalties
Late payments trigger penalties based on the underpayment amount and how long it remains unpaid. However, penalties may be waived under certain conditions detailed in Publication 505. If you discover after a payment deadline that you should have paid estimated tax, make the payment as soon as possible to minimize penalties.
Key Rules or Details for Nonresident Aliens
Special Categories: Farmers, Fishermen, and Higher-Income Taxpayers
Several special categories have modified payment requirements. Farmers and fishermen who derive at least two-thirds of their gross income from farming or fishing can either pay their entire estimated tax by January 15 or file their annual return by March 1 and pay the full tax due. Higher-income taxpayers must use one hundred ten percent of their prior year's tax when calculating required payments, not the standard one hundred percent.
No Joint Estimated Payments in Certain Situations
The form explicitly states you cannot 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. Each spouse must make separate estimated tax payments based on their individual circumstances.
Required Annual Payment and Prior-Year Exception
Your required annual payment equals the smaller of ninety percent of your current year's expected tax or one hundred percent of your prior year's tax (one hundred ten percent for higher earners). You don't need to make estimated payments if your prior year covered twelve full months, you had no tax liability, and you were a U.S. citizen or resident alien for that entire year—though as a nonresident alien, this exception typically won't apply to you.
Income Not Effectively Connected With a U.S. Trade or Business
When calculating estimated tax, you must account for income not effectively connected with a U.S. trade or business separately. This income typically faces a flat thirty percent tax rate (or lower treaty rate). Line 15 of the worksheet specifically addresses this type of income, which gets added to your effectively connected income tax calculation.
Step-by-Step (High Level)
Step 1: Gather Prior-Year Return and Current-Year Information
Start by gathering your prior year's tax return (Form 1040NR or 1040NR-EZ) and considering any changes you expect in the current year. The worksheet on pages five and six walks you through the calculation.
Step 2: Estimate Adjusted Gross Income and Taxable Income
First, estimate your adjusted gross income by projecting your total income and subtracting adjustments like the self-employment tax deduction. Then determine your taxable income by subtracting either itemized deductions or your allowable deductions and your personal exemption amount.
Step 3: Compute Expected Tax Using Nonresident Schedules
Calculate your expected tax using the tax rate schedules provided in the form. These schedules differ depending on your filing status—single, married filing separately, qualifying widow or widower, or estate/trust. If you'll have qualified dividends or net capital gains, you'll need to use special worksheets in Publication 505 to calculate tax at preferential rates. Add any alternative minimum tax and other taxes you expect to owe.
Step 4: Apply Credits and Other Taxes
Subtract credits you expect to claim, then add self-employment tax and other taxes like household employment taxes if applicable. The result is your total estimated tax. Calculate your required annual payment as the smaller of ninety percent of this year's estimated tax or one hundred percent (or one hundred ten percent for high earners) of last year's tax. Subtract any withholding you expect to have during the year.
Step 5: Determine Quarterly Payment Amounts and Pay
Divide the remaining amount by four (or use the appropriate fractions if you don't have wage withholding) to determine each quarterly payment. Write your identifying number and "2012 Form 1040-ES (NR)" on your check or money order, make it payable to "United States Treasury," and mail it with the appropriate payment voucher to the Charlotte, North Carolina address provided. Alternatively, you can pay electronically through EFTPS, by credit or debit card, or by phone.
Common Mistakes and How to Avoid Them
Misunderstanding Which Payment Schedule Applies
Many nonresident aliens incorrectly apply the payment due dates, especially the distinction between those with and without wage withholding. Carefully determine which schedule applies to you. If you have any wages subject to U.S. income tax withholding, you follow the four-payment schedule starting in April. Without such wages, you follow the three-payment schedule starting in June. Using the wrong schedule means missing deadlines and facing penalties.
Failing to Update Estimates When Circumstances Change
Another frequent error involves failing to update estimated payments when circumstances change. If you receive unexpected income or realize your initial estimates were too low, calculate an amended estimate immediately and adjust your remaining payments. Waiting until you file your annual return to address the shortfall guarantees underpayment penalties. Similarly, if you overestimated and are paying too much, you can reduce remaining payments—though it's generally better to overpay slightly than underpay.
Ignoring Income Not Effectively Connected With a U.S. Trade or Business
People often forget to account for income not effectively connected with a U.S. trade or business when completing the worksheet. This income requires separate calculation at the thirty percent flat rate on line 15. Omitting this income understates your tax liability and results in underpayment penalties. Review the source-of-income rules in Publication 519 to properly classify all your U.S.-source income.
Overlooking Self-Employment Tax
Don't neglect self-employment tax if you're self-employed. The Self-Employment Tax and Deduction Worksheet on page five helps you calculate both the tax you owe and the deduction you can take. Remember to use only 92.35 percent of your net profit from self-employment when estimating net earnings. This reduced percentage accounts for the employer-equivalent portion of self-employment tax that you can deduct.
Using the Wrong Name or Identification Number
Filing estimated payments under the wrong name or identification number creates matching problems when you file your annual return. If you changed your name due to marriage or divorce and made payments under your former name, attach a statement to your annual return showing all payments made and the name and number under which you made them. If using a Social Security number, report name changes to the Social Security Administration before filing your return.
What Happens After You File
The IRS doesn't send reminders when estimated tax payments are due—you must track deadlines yourself. After mailing a payment, if it's postmarked by the due date, that date counts as your payment date. Late payments immediately begin accruing underpayment penalties calculated on the shortfall amount for each day it remains unpaid. The penalty compounds until you either make the payment or file your annual return.
Your payments are credited to your account when processed. You'll see these credits reflected on your annual tax return when you file Form 1040NR or 1040NR-EZ. Report all estimated tax payments on your return, including any overpayment from the prior year you elected to apply to the current year. The total estimated payments reduce your balance due or increase your refund.
If you discover you made an error in your estimated tax calculation or circumstances changed dramatically, you can adjust future payments without formally amending past payments—simply recalculate and pay the corrected amounts going forward. However, if early installments were insufficient, you might owe an underpayment penalty even if your total annual payments ultimately covered your tax liability. Publication 505 explains how to calculate this penalty or determine if you qualify for a waiver.
When you file your annual return, the IRS automatically calculates any underpayment penalty if you request it by not filing Form 2210. If you prefer to calculate the penalty yourself to potentially reduce it using the annualized income installment method, complete Form 2210 and include it with your return. This method helps if your income varied significantly during the year rather than arriving evenly.
Keep records of all estimated tax payments including check numbers, money order numbers, electronic confirmation numbers, and payment dates. The vouchers include a tear-off section for tracking this information. If questions arise about whether you made a payment, these records provide documentation. Electronic payments through EFTPS or other methods provide automatic confirmation that paper payments don't offer.
FAQs
Do I need to make estimated tax payments if I just started working in the U.S. this year and had no prior year return?
If you had no prior year return or your prior year covered less than twelve months, you only need to make estimated payments if you expect to owe at least one thousand dollars after subtracting withholding and credits, and this amount exceeds your withholding by ninety percent of your current year's expected tax. Without a prior year return, you can't use the one hundred percent safe harbor, so ensure your withholding and estimated payments equal at least ninety percent of your current year's tax to avoid penalties.
Can I increase my wage withholding instead of making estimated tax payments?
Yes, if you receive wages subject to U.S. withholding, you can ask your employer to withhold additional tax by completing a new Form W-4 and requesting extra withholding in Step 4(c). This strategy can be simpler than making quarterly estimated payments. The IRS treats withholding as paid evenly throughout the year for penalty calculation purposes, even if the actual withholding occurred late in the year, potentially helping you avoid underpayment penalties.
What happens if I pay too much estimated tax during the year?
When you file your annual return, any overpayment can either be refunded to you or applied as a credit toward next year's estimated tax. You indicate your choice on Form 1040NR. Once you elect to apply an overpayment to next year, you cannot change that election to request a refund instead. The credit is treated as an estimated tax payment made on the first payment due date of the following year.
I'm a nonresident alien married to a U.S. citizen. Can we make joint estimated tax payments?
No, the form explicitly prohibits joint estimated tax payments if either spouse is a nonresident alien. You must make separate estimated payments based on your individual tax situations. However, when filing your annual return, you might be able to elect to be treated as a resident alien for tax purposes and file jointly with your U.S. citizen spouse, potentially providing overall tax benefits despite the separate estimated payment requirement.
How do I know if my income is effectively connected with a U.S. trade or business?
Generally, if you regularly perform personal services in the U.S., that compensation is effectively connected income. Business income from activities conducted in the U.S. also typically qualifies. Investment income like interest and dividends usually isn't effectively connected unless it passes either the asset-use test or business-activities test. Publication 519, Chapter 4 provides detailed guidance. Income not effectively connected usually faces the thirty percent flat withholding rate rather than graduated tax rates.
My only U.S. income is from rental property. Do I need to make estimated tax payments?
Rental income from U.S. real property is typically subject to thirty percent withholding on the gross rental income. However, you can elect to treat this income as effectively connected with a U.S. trade or business by filing Form 1040NR, which allows you to deduct expenses against the income and pay tax at graduated rates. If you make this election, you'll likely need to make estimated tax payments since there's no withholding on the net income. Calculate your estimated tax based on expected net rental income after expenses.
What if I don't discover I should have made estimated payments until after the year ends?
You'll owe an underpayment penalty when you file your annual return, calculated from each payment's due date until you actually file your return and pay the tax. The penalty is based on the federal short-term interest rate plus three percentage points. While you can't retroactively make estimated payments for past quarters, paying the full amount when filing your return stops further penalty accrual. File your return as soon as possible to minimize penalties, and include Form 2210 if you want to calculate the penalty yourself rather than having the IRS calculate it.
Sources: All information derived from IRS Form 1040-ES(NR) 2012, Publication 505 (Tax Withholding and Estimated Tax), and Publication 519 (U.S. Tax Guide for Aliens).
