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Publication 17
taxmap/pub17/p17-020.htm#en_us_publink100032323

Chapter 4
Tax Withholding and Estimated Tax(p36)

What's New for 2014(p36)


taxmap/pub17/p17-020.htm#en_us_publink1000273306
Tax law changes for 2014.(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 2014. For more information, see Publication 505.

Reminders(p37)


taxmap/pub17/p17-020.htm#en_us_publink100032327
Estimated tax safe harbor for higher income taxpayers.(p37)
If your 2013 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 2014 or 110% of the tax shown on your 2013 return to avoid an estimated tax penalty.
taxmap/pub17/p17-020.htm#en_us_publink1000271753
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.
This chapter explains these methods. In addition, it also explains the following.

taxmap/pub17/p17-020.htm#TXMP66374faf

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/p17-020.htm#en_us_publink100032329

Tax Withholding
for 2014(p37)

rule
This section discusses income tax withholding on: 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/p17-020.htm#en_us_publink100032330

Salaries and Wages(p37)

rule
Income 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 2014.
taxmap/pub17/p17-020.htm#en_us_publink100032331

Military retirees.(p37)

rule
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/p17-020.htm#en_us_publink100032332

Household workers.(p37)

rule
If 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 2014.
taxmap/pub17/p17-020.htm#en_us_publink100032333

Farmworkers.(p37)

rule
Generally, income tax is withheld from your cash wages for work on a farm unless your employer does both of these:
taxmap/pub17/p17-020.htm#en_us_publink1000210075

Differential wage payments.(p37)

rule
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.
The credit employers can claim for differential wages paid to activated military reservists is scheduled to expire for wages paid after December 31, 2013.
taxmap/pub17/p17-020.htm#en_us_publink100032334

Determining Amount of Tax Withheld Using Form W-4(p37)

rule
The amount of income tax your employer withholds from your regular pay depends on two things.
Form W-4 includes four types of information that your employer will use to figure your withholding.
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/p17-020.htm#en_us_publink100032336

New Job(p37)

rule
When 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.
taxmap/pub17/p17-020.htm#en_us_publink100032337

Employee also receiving pension income. (p38)

rule
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/p17-020.htm#en_us_publink100032338

Changing Your Withholding(p38)

rule
During 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/p17-020.htm#en_us_publink100032339

Changing your withholding for 2015.(p38)

rule
If events in 2014 will decrease the number of your withholding allowances for 2015, you must give your employer a new Form W-4 by December 1, 2014. If the event occurs in December 2014, submit a new Form W-4 within 10 days.
taxmap/pub17/p17-020.htm#en_us_publink100032340

Checking Your Withholding(p38)

rule
After 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/p17-020.htm#en_us_publink100032342

Completing Form W-4 and Worksheets(p38)

rule
Form 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/p17-020.htm#en_us_publink100032343

Multiple jobs.(p38)

rule
If 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/p17-020.htm#en_us_publink100032344

Married individuals.(p38)

rule
If 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/p17-020.htm#en_us_publink100032345

Alternative method of figuring withholding allowances.(p38)

rule
You 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/p17-020.htm#en_us_publink100032346

Personal Allowances Worksheet.(p38)

rule
Use the Personal Allowances Worksheet on Form W-4 to figure your withholding allowances based on exemptions and any special allowances that apply.
taxmap/pub17/p17-020.htm#en_us_publink100032347

Deduction and Adjustments Worksheet.(p38)

rule
Use the Deduction and Adjustments Worksheet on Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 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.
taxmap/pub17/p17-020.htm#en_us_publink100032348

Two-Earners/Multiple Jobs Worksheet.(p38)

rule
You may need to complete the Two-Earners/Multiple Jobs Worksheet on Form W-4 if you have more than one job, a working spouse, or are also receiving a pension. Also, on 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/p17-020.htm#en_us_publink100032349

Getting the Right Amount of Tax Withheld(p38)

rule
In 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.
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.
taxmap/pub17/p17-020.htm#en_us_publink100032350

Cumulative wage method.(p38)

rule
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/p17-020.htm#en_us_publink100032351

Publication 505(p38)

rule
To 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 2014, later.
Deposit
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/p17-020.htm#en_us_publink100032352

Rules Your Employer Must Follow(p38)

rule
It 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/p17-020.htm#en_us_publink100032353

New Form W-4.(p38)

rule
When you start a new job, your employer should have you complete a Form W-4. 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/p17-020.htm#en_us_publink100032354

No Form W-4.(p38)

rule
If 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/p17-020.htm#en_us_publink100032355

Repaying withheld tax.(p38)

rule
If 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/p17-020.htm#en_us_publink100032356

Exemption From Withholding(p39)

rule
If 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 2014 only if both of the following situations apply.
taxmap/pub17/p17-020.htm#en_us_publink100032357

Students.(p39)

rule
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.
taxmap/pub17/p17-020.htm#en_us_publink100032358

Age 65 or older or blind.(p39)

rule
If you are 65 or older or blind, use Worksheet 1-3 or 1-4 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 2014 return. Instead, see Itemizing deductions or claiming exemptions or credits in chapter 1 of Publication 505.
taxmap/pub17/p17-020.htm#en_us_publink100032359

Claiming exemption from withholding. (p39)

rule
To 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 2014, but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014.
Your claim of exempt status may be reviewed by the IRS.
taxmap/pub17/p17-020.htm#en_us_publink100032360
An exemption is good for only 1 year.(p39)
You must give your employer a new Form W-4 by February 15 each year to continue your exemption.
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Supplemental Wages(p39)

rule
Supplemental 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/p17-020.htm#en_us_publink100032362

Expense allowances.(p39)

rule
Reimbursements 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.
taxmap/pub17/p17-020.htm#en_us_publink100032363

Penalties(p39)

rule
You may have to pay a penalty of $500 if both of the following apply.
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/p17-020.htm#en_us_publink100032364

Tips(p39)

rule
The 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.
taxmap/pub17/p17-020.htm#en_us_publink100032365

How employer figures amount to withhold.(p39)

rule
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.
taxmap/pub17/p17-020.htm#en_us_publink100032366

Not enough pay to cover taxes.(p39)

rule
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.
taxmap/pub17/p17-020.htm#en_us_publink100032367

Allocated tips.(p39)

rule
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.
taxmap/pub17/p17-020.htm#en_us_publink100032368

Taxable Fringe Benefits(p39)

rule
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.
taxmap/pub17/p17-020.htm#en_us_publink100032369

Sick Pay(p39)

rule
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, later.
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/p17-020.htm#en_us_publink100032370

Union agreements.(p39)

rule
If 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/p17-020.htm#en_us_publink100032371

Form W-4S.(p39)

rule
If 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/p17-020.htm#en_us_publink100032372

Estimated tax.(p40)

rule
If 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 2013 at the end of this chapter.
taxmap/pub17/p17-020.htm#en_us_publink100032373

Pensions and Annuities(p40)

rule
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:
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/p17-020.htm#en_us_publink100032374

More information.(p40)

rule
For 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.
taxmap/pub17/p17-020.htm#en_us_publink100032375

Gambling Winnings(p40)

rule
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. 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.
taxmap/pub17/p17-020.htm#en_us_publink100010820
Exception. (p40)
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 2014, 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 2013 at the end of this chapter.
taxmap/pub17/p17-020.htm#en_us_publink100032376

Form W-2G.(p40)

rule
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/p17-020.htm#en_us_publink100032377

Unemployment Compensation(p40)

rule
You 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 2014, 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 2013 at the end of this chapter.
taxmap/pub17/p17-020.htm#en_us_publink100032378

Federal Payments(p40)

rule
You can choose to have income tax withheld from certain federal payments you receive. These payments are:
  1. Social security benefits,
  2. Tier 1 railroad retirement benefits,
  3. Commodity credit corporation loans you choose to include in your gross income,
  4. 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:
    1. Your crops were destroyed or damaged by drought, flood, or any other natural disaster, or
    2. You were unable to plant crops because of a natural disaster described in (a), and
  5. 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 2014, 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 2013 at the end of this chapter.
taxmap/pub17/p17-020.htm#en_us_publink100032379

More information.(p40)

rule
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.
taxmap/pub17/p17-020.htm#en_us_publink100032380

Backup Withholding(p40)

rule
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.
See Backup Withholding in chapter 1 of Publication 505 for more information.
taxmap/pub17/p17-020.htm#en_us_publink100032381

Penalties.(p40)

rule
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.