What Is Tax Form 1040ES?Published:
IRS Tax Form 1040-ES is used by individuals to report Estimated Tax.
Estimated Tax is the method that individuals and businesses use to pay tax on their income that is not subject to withholding. This may include income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay Estimated Tax if the amount of income tax being withheld from your paycheck (salary, pension, or other income) is not enough.
Estimated Taxes are used to pay for income tax and self-employment tax, as well as other taxes and amounts that are required to be reported on your income tax return (Form 1040). If you do not pay enough through withholding or estimated tax payments during the year, you may be charged a penalty by the IRS. If you do not pay enough Estimated Tax by the due date of each payment period (typically quarterly) you may be charged a penalty — even if you are due a tax refund when you file your return.
Estimated Tax payments are typically made in quarterly installments using IRS Form 1040-ES, which can be filed electronically or by paper mail.
Who Must Pay Estimated Tax?
The following individuals are generally required to make Estimated Tax payments if you owe tax of $1,000 or more when you file your tax return:
- Sole proprietors
- S-corporation shareholders
- Self-employed individuals
Corporations are generally required to make Estimated Tax payments if it’s expect to owe tax of $500 or more when it’s corporate return is filed.
Note that if you had a tax liability for the previous year, you may need to pay Estimated Tax for the current year. For more information regarding who must pay Estimated Taxes, see the Instructions and Worksheet for IRS Tax Form 1040-ES.
Who Doesn’t Have to Pay Estimated Tax?
Most individuals can avoid having to pay Estimated Tax by asking their employer to withhold more tax from their wages. To do this, you must file a new Form W-4 with your employer. There is a special line on the W-4 Form where you can enter the additional amount that you want your employer to withhold from your paychecks.
You do not have to pay Estimated Tax for the current year as long as you meet all 3 of the following requirements:
- You had no tax liability for the previous year (meaning that your total tax was zero, or you did not have to file an income tax return)
- You have been a U.S. citizen or resident for the entire year
- Your prior tax year covered a 12-month period
Note that Estimated Tax requirements are different for famers and fishermen. For more information regarding Estimated Tax, see IRS Publication 505 (Tax Withholding and Estimated Tax).