Publication 17
taxmap/pub17/p17-019.htm#en_us_publink100032323taxmap/pub17/p17-019.htm#en_us_publink1000273306Tax law changes for 2013.
(p36)When you figure how much income tax you want withheld from your pay and when you figure your estimated tax, consider tax law changes effective in 2013. For more information, see Publication
505.
Estimated tax safe harbor for higher income taxpayers.
(p36)If your 2012 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2013 or 110% of the tax shown on your 2012 return to avoid an estimated tax penalty.
This chapter discusses how to pay your tax as you earn or receive income during the year. In general, the federal income tax is a pay-as-you-go tax. There are two ways to pay as you go.
- Withholding.
If you are an employee, your employer probably withholds income tax from your
pay. Tax also may be withheld from certain other income, such as pensions,
bonuses, commissions, and gambling winnings. The amount withheld is paid to the
IRS in your name.
- Estimated tax.
If you do not pay your tax through withholding, or do not pay enough tax that
way, you may have to pay estimated tax. People who are in business for
themselves generally will have to pay their tax this way. Also, you may have to
pay estimated tax if you receive income such as dividends, interest, capital
gains, rent, and royalties. Estimated tax is used to pay not only income tax,
but self-employment tax and alternative minimum tax as well.
This chapter explains these methods. In addition, it also explains the following.
- Credit for withholding and estimated tax.
When you file your 2012 income tax return, take credit for all the income tax
withheld from your salary, wages, pensions, etc., and for the estimated tax you
paid for 2012. Also take credit for any excess social security or railroad
retirement tax withheld (discussed in chapter 36).
- Underpayment penalty.
If you did not pay enough tax during the year, either through withholding or by
making estimated tax payments, you may have to pay a penalty. In most cases, the
IRS can figure this penalty for you. See
Underpayment Penalty for 2012 at the end of this chapter.
Useful items
You may want to see:
Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) W-4:
Employee's Withholding Allowance Certificate W-4P:
Withholding Certificate for Pension or Annuity Payments W-4S:
Request for Federal Income Tax Withholding From Sick Pay W-4V:
Voluntary Withholding Request 1040-ES:
Estimated Tax for Individuals 2210:
Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F:
Underpayment of Estimated Tax by Farmers and Fishermen taxmap/pub17/p17-019.htm#en_us_publink100032329This section discusses income tax withholding on:
- Salaries and wages,
- Tips,
- Taxable fringe benefits,
- Sick pay,
- Pensions and annuities,
- Gambling winnings,
- Unemployment compensation, and
- Certain federal payments.
This section explains the rules for withholding tax from each of these types of
income.
This section also covers backup withholding on interest, dividends, and other
payments.
taxmap/pub17/p17-019.htm#en_us_publink100032330Income tax is withheld from the pay of most employees. Your pay includes your regular pay, bonuses, commissions, and vacation allowances. It also includes reimbursements and other expense allowances paid under a nonaccountable plan. See
Supplemental Wages, later, for more information about reimbursements and allowances paid under a nonaccountable
plan.
If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. This is explained under
Exemption From Withholding, later.
You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed later under
Estimated Tax for 2013.
Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes.
taxmap/pub17/p17-019.htm#en_us_publink100032332If you are a household worker, you can ask your employer to withhold income tax from your pay. A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority
chapter.
Tax is withheld only if you want it withheld and your employer agrees to withhold it. If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed later under
Estimated Tax for 2013.
Generally, income tax is withheld from your cash wages for work on a farm unless your employer does both of these:
- Pays you cash wages of less than $150 during the year, and
- Has expenditures for agricultural labor totaling less than $2,500 during the
year.
When employees are on leave from employment for military duty, some employers
make up the difference between the military pay and civilian pay. Payments to an
employee who is on active duty for a period of more than 30 days will be subject
to income tax withholding, but not subject to social security or Medicare taxes.
The wages and withholding will be reported on Form W-2, Wage and Tax Statement.
taxmap/pub17/p17-019.htm#en_us_publink100032334The amount of income tax your employer withholds from your regular pay depends on two things.
- The amount you earn in each payroll period.
- The information you give your employer on Form W-4.
Form W-4 includes four types of information that your employer will use to figure your withholding.
- Whether to withhold at the single rate or at the lower married
rate.
- How many withholding allowances you claim (each allowance reduces the amount
withheld).
- Whether you want an additional amount withheld.
- Whether you are claiming an exemption from withholding in 2013. See
Exemption From Withholding, later.
Note.You must specify a filing status and a number of withholding allowances on Form W-4. You cannot specify only a dollar amount of
withholding.
taxmap/pub17/p17-019.htm#en_us_publink100032336When you start a new job, you must fill out Form W-4 and give it to your employer. Your employer should have copies of the form. If you need to change the information later, you must fill out a new form.
If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. You may be able to avoid overwithholding if your employer agrees to use the part-year method. See
Part-Year Method
in chapter 1 of Publication
505 for more information.
If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. However, you can choose to split your withholding allowances between your pension and job in any manner.
taxmap/pub17/p17-019.htm#en_us_publink100032338During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. When this happens, you may need to give your employer a new Form W-4 to change your withholding status or your number of
allowances.
If the changes reduce the number of allowances you are claiming or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days.
Generally, you can submit a new Form W-4 whenever you wish to change the number of your withholding allowances for any other
reason.
taxmap/pub17/p17-019.htm#en_us_publink100032339If events in 2013 will decrease the number of your withholding allowances for 2014, you must give your employer a new Form W-4 by December 1, 2013. If the event occurs in December 2013, submit a new Form W-4 within 10 days.
taxmap/pub17/p17-019.htm#en_us_publink100032340After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too little or too much. If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. You should try to have your withholding match your actual tax liability. If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, you will lose the use of that money until you get your refund. Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability.
Note.You cannot give your employer a payment to cover withholding on salaries and wages for past pay periods or a payment for estimated tax.
taxmap/pub17/p17-019.htm#en_us_publink100032342Form W-4 has worksheets to help you figure how many withholding allowances you can claim. The worksheets are for your own records. Do not give them to your
employer.
taxmap/pub17/p17-019.htm#en_us_publink100032343If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. Then split your allowances between the Forms W-4 for each job. You cannot claim the same allowances with more than one employer at the same time. You can claim all your allowances with one employer and none with the other(s), or divide them any other way.
taxmap/pub17/p17-019.htm#en_us_publink100032344If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Use only one set of worksheets. You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims.
If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits.
taxmap/pub17/p17-019.htm#en_us_publink100032345You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. For more information, see
Alternative method of figuring withholding allowances
under
Completing Form W-4 and Worksheets
in Publication 505, chapter 1.
taxmap/pub17/p17-019.htm#en_us_publink100032346Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on exemptions and any special allowances that
apply.
taxmap/pub17/p17-019.htm#en_us_publink100032347Use the Deduction and Adjustments Worksheet on page 2 of Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2013 tax return and you want to reduce your withholding. Also, complete this worksheet when you have changes to these items to see if you need to change your withholding.
The Deductions and Adjustments Worksheet is on page 2 of Form W-4. Chapter 1 of Publication 505 explains this worksheet.
taxmap/pub17/p17-019.htm#en_us_publink100032348You may need to complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job, a working spouse, or are also receiving a pension. Also, on line 8 of this worksheet you can add any additional withholding necessary to cover any amount you expect to owe other than income tax, such as self-employment
tax.
taxmap/pub17/p17-019.htm#en_us_publink100032349In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules.
- You accurately complete all the Form W-4 worksheets that apply to
you.
- You give your employer a new Form W-4 when changes occur.
But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations.
- You are married and both you and your spouse work.
- You have more than one job at a time.
- You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment
income.
- You will owe additional amounts with your return, such as self-employment
tax.
- Your withholding is based on obsolete Form W-4 information for a substantial part of the
year.
- Your earnings are more than the amount shown under
Check your withholding in the instructions at the top of page 1 of Form W-4.
- You work only part of the year.
- You change the number of your withholding allowances during the
year.
If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. You must ask your employer in writing to use this
method.
To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc.) since the beginning of the year.
taxmap/pub17/p17-019.htm#en_us_publink100032351To make sure you are getting the right amount of tax withheld, get Publication 505. It will help you compare the total tax to be withheld during the year with the tax you can expect to figure on your return. It also will help you determine how much, if any, additional withholding is needed each payday to avoid owing tax when you file your return. If you do not have enough tax withheld, you may have to pay estimated tax, as explained under
Estimated Tax for 2013, later.
 | You can use the IRS Withholding Calculator at
www.irs.gov/Individuals, instead of Publication 505 or the worksheets included with Form W-4, to determine whether you need to have your withholding increased or
decreased. |
taxmap/pub17/p17-019.htm#en_us_publink100032352It may be helpful for you to know some of the withholding rules your employer must follow. These rules can affect how to fill out your Form W-4 and how to handle problems that may
arise.
taxmap/pub17/p17-019.htm#en_us_publink100032353When you start a new job, your employer should give you a Form W-4 to fill out. Beginning with your first payday, your employer will use the information you give on the form to figure your withholding.
If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in.
taxmap/pub17/p17-019.htm#en_us_publink100032354If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances.
taxmap/pub17/p17-019.htm#en_us_publink100032355If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. Your employer cannot repay any of the tax previously withheld. Instead, claim the full amount withheld when you file your tax return.
However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. Your employer can repay the amount that was withheld incorrectly. If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return.
taxmap/pub17/p17-019.htm#en_us_publink100032356If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. The exemption applies only to income tax, not to social security or Medicare
tax.
You can claim exemption from withholding for 2013 only if both of the following situations apply.
- For 2012 you had a right to a refund of all federal income tax withheld because you had no tax
liability.
- For 2013 you expect a refund of all federal income tax withheld because you expect to have no tax liability.
If you are a student, you are not automatically exempt. See
chapter 1
to find out if you must file a return. If you work only part time or only during
the summer, you may qualify for exemption from withholding.
If you are 65 or older or blind, use Worksheet 1-1 or 1-2 in chapter 1 of Publication 505, to help you decide if you qualify for exemption from withholding. Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2013 return. Instead, see
Itemizing deductions or claiming exemptions or credits
in chapter 1 of Publication 505.
taxmap/pub17/p17-019.htm#en_us_publink100032359To claim exemption, you must give your employer a Form W-4. Do not complete lines 5 and 6. Enter "Exempt" on line 7.
If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. If you claim exemption in 2013, but you expect to owe income tax for 2014, you must file a new Form W-4 by December 1, 2013.
Your claim of exempt status may be reviewed by the IRS.
taxmap/pub17/p17-019.htm#en_us_publink100032360You must give your employer a new Form W-4 by February 15 each year to continue your exemption.
taxmap/pub17/p17-019.htm#en_us_publink100032361Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. The payer can figure withholding on supplemental wages using the same method used for your regular wages. However, if these payments are identified separately from your regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate.
taxmap/pub17/p17-019.htm#en_us_publink100032362Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages.
Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time.
For more information about accountable and nonaccountable expense allowance plans, see
Reimbursements in chapter 26.
You may have to pay a penalty of $500 if both of the following apply.
- You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax
withheld.
- You have no reasonable basis for those statements or allowances at the time you prepare your Form
W-4.
There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both.
These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. A simple error or an honest mistake will not result in one of these penalties. For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a W-4 penalty.
taxmap/pub17/p17-019.htm#en_us_publink100032364The tips you receive while working on your job are considered part of your pay. You must include your tips on your tax return on the same line as your regular pay. However, tax is not withheld directly from tip income, as it is from your regular pay. Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay.
See
chapter 6
for information on reporting your tips to your employer. For more information on
the withholding rules for tip income, see Publication
531, Reporting Tip Income.
The tips you report to your employer are counted as part of your income for the month you report them. Your employer can figure your withholding in either of two ways.
- By withholding at the regular rate on the sum of your pay plus your reported
tips.
- By withholding at the regular rate on your pay plus a percentage of your reported tips.
If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. See
Giving your employer money for taxes in chapter 6.
Your employer should not withhold income tax, Medicare tax, social security tax, or railroad retirement tax on any allocated tips. Withholding is based only on your pay plus your reported tips. Your employer should refund to you any incorrectly withheld tax. See
Allocated Tips in chapter 6 for more information.
The value of certain noncash fringe benefits you receive from your employer is considered part of your pay. Your employer generally must withhold income tax on these benefits from your regular pay.
For information on fringe benefits, see
Fringe Benefits under
Employee Compensation
in chapter 5.
Although the value of your personal use of an employer-provided car, truck, or other highway motor vehicle is taxable, your employer can choose not to withhold income tax on that amount. Your employer must notify you if this choice is made.
For more information on withholding on taxable fringe benefits, see chapter 1 of Publication
505.
Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. To qualify as sick pay, it must be paid under a plan to which your employer is a party.
If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate.
However, if you receive sick pay from a third party who is not acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. See
Form W-4S, below.
If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and usually are not taxable.
taxmap/pub17/p17-019.htm#en_us_publink100032370If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. See your union representative or your employer for more information.
taxmap/pub17/p17-019.htm#en_us_publink100032371If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W-4S. Its instructions contain a worksheet you can use to figure the amount you want withheld. They also explain restrictions that may
apply.
Give the completed form to the payer of your sick pay. The payer must withhold according to your directions on the form.
taxmap/pub17/p17-019.htm#en_us_publink100032372If you do not request withholding on Form W-4S, or if you do not have enough tax withheld, you may have to make estimated tax payments. If you do not pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. See
Underpayment Penalty for 2012 at the end of this chapter.
Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. This rule applies to distributions from:
- A traditional individual retirement arrangement (IRA);
- A life insurance company under an endowment, annuity, or life insurance
contract;
- A pension, annuity, or profit-sharing plan;
- A stock bonus plan; and
- Any other plan that defers the time you receive compensation.
The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). Income tax withholding from an ERD is mandatory.
taxmap/pub17/p17-019.htm#en_us_publink100032374For more information on taxation of annuities and distributions (including ERDs) from qualified retirement plans, see
chapter 10. For information on IRAs, see
chapter 17. For more information on withholding on pensions and annuities, including a discussion of Form W-4P, see
Pensions and Annuities
in chapter 1 of Publication
505.
Income tax is withheld at a flat 25% rate from certain kinds of gambling
winnings.
Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding.
- Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or
lottery.
- Any other wager, if the proceeds are at least 300 times the amount of the bet.
It does not matter whether your winnings are paid in cash, in property, or as an annuity. Winnings not paid in cash are taken into account at their fair market value.
Gambling winnings from bingo, keno, and slot machines generally are not subject to income tax withholding. However, you may need to provide the payer with a social security number to avoid withholding. See
Backup withholding on gambling winnings
in chapter 1 of Publication 505. If you receive gambling winnings not subject to withholding, you may need to pay estimated tax. See
Estimated Tax for 2013, later.
If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. See
Underpayment Penalty for 2012 at the end of this chapter.
If a payer withholds income tax from your gambling winnings, you should receive a Form W-2G, Certain Gambling Winnings, showing the amount you won and the amount withheld. Report the tax withheld on line 62 of Form 1040.
taxmap/pub17/p17-019.htm#en_us_publink100032377You can choose to have income tax withheld from unemployment compensation. To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the
payer.
All unemployment compensation is taxable. So, if you do not have income tax withheld, you may have to pay estimated tax. See
Estimated Tax for 2013, later.
If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. For information, see
Underpayment Penalty for 2012 at the end of this chapter.
You can choose to have income tax withheld from certain federal payments you receive. These payments are:
- Social security benefits,
- Tier 1 railroad retirement benefits,
- Commodity credit corporation loans you choose to include in your gross income,
and
- Payments under the Agricultural Act of 1949 (7 U.S.C. 1421 et. seq.), as amended, or title II of the Disaster Assistance Act of 1988, that are treated as insurance proceeds and that you receive
because:
- Your crops were destroyed or damaged by drought, flood, or any other natural disaster,
or
- You were unable to plant crops because of a natural disaster described in (a),
and
- Any other payment under Federal law as determined by the Secretary.
To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the
payer.
If you do not choose to have income tax withheld, you may have to pay estimated tax. See
Estimated Tax for 2013, later.
If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. For information, see
Underpayment Penalty for 2012 at the end of this chapter.
For more information about the tax treatment of social security and railroad retirement benefits, see
chapter 11. Get Publication
225, Farmer's Tax Guide, for information about the tax treatment of commodity credit corporation loans or crop disaster
payments.
Banks or other businesses that pay you certain kinds of income must file an information return (Form 1099) with the IRS. The information return shows how much you were paid during the year. It also includes your name and taxpayer identification number (TIN). TINs are explained in chapter 1 under
Social Security Number (SSN).
These payments generally are not subject to withholding. However, "backup" withholding is required in certain situations. Backup withholding can apply to most kinds of payments that are reported on Form 1099.
The payer must withhold at a flat 28% rate in the following situations.
- You do not give the payer your TIN in the required manner.
- The IRS notifies the payer that the TIN you gave is incorrect.
- You are required, but fail, to certify that you are not subject to backup
withholding.
- The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 210-day period.
See
Backup Withholding
in chapter 1 of Publication
505 for more information.
There are civil and criminal penalties for giving false information to avoid backup withholding. The civil penalty is $500. The criminal penalty, upon conviction, is a fine of up to $1,000 or imprisonment of up to 1 year, or both.
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