Page 25 - Tax withholding and Estimated Taxes

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or higher-income taxpayer. See Special Rules, However, you and your spouse can’t make Tax on $40,100 based on separate
later. joint estimated tax payments if: return . . . . . . . . . . . . . . . . . . . . . . . . . . $4,686
If the result from using the general rule • You are legally separated under a decree Tax on $8,400 based on separate 843
of divorce or separate maintenance,
! above suggests that you won’t have • You and your spouse have different tax return . . . . . . . . . . . . . . . . . . . . . . . . . . $5,529
CAUTION enough withholding, complete the years, or Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 Estimated Tax Worksheet for a more ac- • Either spouse is a nonresident alien (un- Joe's percentage of total ($4,686 ÷
curate calculation. less that spouse elected to be treated as a $5,529) . . . . . . . . . . . . . . . . . . . . . . . . . 85%
resident alien for tax purposes). See Joe's share of tax on joint return $4,620
Figure 2-A takes you through the general Choosing Resident Alien Status in Pub. ($5,435 × 85% (0.85)) . . . . . . . . . . . . . .
rule. You may find this helpful in determining if 519.
you must pay estimated tax. Special Rules
If all your income will be subject to in- Note. Individuals who are in registered do-
TIP come tax withholding, you probably mestic partnerships, civil unions, or other simi- There are special rules for farmers, fishermen,
lar formal relationships that are not marriages
don’t need to pay estimated tax. and certain higher income taxpayers.
under state law can’t make joint estimated tax
payments. These individuals can take credit
Example 1. Jane Smart uses Figure 2-A only for the estimated tax payments that he or Farmers and Fishermen
and the following information to figure whether she made.
she should pay estimated tax for 2020. She files If at least two-thirds of your gross income for
Form 1040 as head of household, takes the If you and your spouse can’t make joint esti- 2019 or 2020 is from farming or fishing, substi-
standard deduction, and expects no refundable mated tax payments, apply these rules to your tute 66 2 /3% for 90% in (2a) under General Rule,
credits for 2020. separate estimated income. later.
Making joint or separate estimated tax pay- Gross income. Your gross income is all in-
Expected adjusted gross income (AGI) ments won’t affect your choice of filing a joint come you receive in the form of money, goods,
for 2020 . . . . . . . . . . . . . . . . . . . . . . . $74,550 tax return or separate returns for 2020. property, and services that isn’t exempt from
AGI for 2019 . . . . . . . . . . . . . . . . . . . . . $57,150 tax. To determine whether two-thirds of your
Total tax on 2019 return (Form 1040, 2019 separate returns and 2020 joint re- gross income for 2019 was from farming or fish-
line 16) . . . . . . . . . . . . . . . . . . . . . . . . $ 7,017 turn. If you plan to file a joint return with your ing, use as your gross income the total of the in-
Total 2020 estimated tax (line 11c of spouse for 2020, but you filed separate returns come (not loss) amounts.
the 2019 Estimated Tax for 2019, your 2019 tax is the total of the tax
Worksheet) . . . . . . . . . . . . . . . . . . . . $11,015 shown on your separate returns. You filed a Joint returns. On a joint return, you must add
Tax expected to be withheld in separate return if you filed as single, head of your spouse's gross income to your gross in-
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000 household, or married filing separately. come to determine if at least two-thirds of your
total gross income is from farming or fishing.
Jane's answer to Figure 2-A, box 1, is YES; 2019 joint return and 2020 separate re-
she expects to owe at least $1,000 for 2020 af- turns. If you plan to file a separate return for Gross income from farming. This is income
ter subtracting her withholding from her expec- 2020, but you filed a joint return for 2019, your from cultivating the soil or raising agricultural
ted total tax ($11,015 − $10,000 = $1,015). Her 2019 tax is your share of the tax on the joint re- commodities. It includes the following amounts.
answer to box 2a is YES; she expects her in- turn. You file a separate return if you file as sin- • Income from operating a stock, dairy, poul-
come tax withholding ($10,000) to be at least gle, head of household, or married filing sepa- try, bee, fruit, or truck farm.
90% of the tax to be shown on her 2020 return rately. • Income from a plantation, ranch, nursery,
($11,015 × 90% (0.90) = $9,913.50). Jane does To figure your share of the tax on a joint re- range, orchard, or oyster bed.
not need to pay estimated tax. turn, first figure the tax both you and your • Crop shares for the use of your land.
spouse would have paid had you filed separate • Gains from sales of draft, breeding, dairy,
Example 2. The facts are the same as in returns for 2019 using the same filing status for or sporting livestock.
Example 1, except that Jane expects only 2020. Then, multiply the tax on the joint return
$7,000 tax to be withheld in 2020. Because that by the following fraction. For 2019, gross income from farming is the
is less than $9,913.50, her answer to box 2a is total of the following amounts.
NO. • Schedule F (Form 1040 or 1040-SR), Profit
Jane's answer to box 2b is also NO; she The tax you would have paid or Loss From Farming, line 9.
does not expect her income tax withholding had you filed a separate • Form 4835, Farm Rental Income and Ex-
($7,000) to be at least 100% of the total tax return penses, line 7.
shown on her 2019 return ($7,017). Jane must The total tax you and your • Your share of the gross farming income
increase her withholding or pay estimated tax spouse would have paid from a partnership, S corporation, estate or
for 2020. had you filed separate trust, from Schedule K-1 (Form 1065),
Schedule K-1 (Form 1120-S), or Sched-
returns
Example 3. The facts are the same as in ule K-1 (Form 1041).
Example 2, except that the total tax shown on • Your gains from sales of draft, breeding,
Jane's 2019 return was $6,400. Because she Example. Joe and Heather filed a joint re- dairy, or sporting livestock shown on Form
expects to have more than $6,400 withheld in turn for 2019 showing taxable income of 4797, Sales of Business Property.
2020 ($7,000), her answer to box 2b is YES. $48,500 and a tax of $5,435. Of the $48,500 Wages you receive as a farm employee and
Jane does not need to pay estimated tax for taxable income, $40,100 was Joe's and the rest wages you receive from a farm corporation are
2020. was Heather's. For 2020, they plan to file mar- not gross income from farming.
ried filing separately. Joe figures his share of
Married Taxpayers the tax on the 2019 joint return as follows. Gross income from fishing. This is income
from catching, taking, harvesting, cultivating, or
If you qualify to make joint estimated tax pay- farming any kind of fish, shellfish (for example,
clams and mussels), crustaceans (for example,
ments, apply the rules discussed here to your lobsters, crabs, and shrimp), sponges, sea-
joint estimated income. weeds, or other aquatic forms of animal and
You and your spouse can make joint estima- vegetable life.
ted tax payments even if you are not living to-
gether.
Chapter 2 Estimated Tax for 2020 Page 23