2018 Federal Tax Law Course II

In this tax subject, we will review some tax rules that relate to the AMT, prior yeras minimum tax credit, distributions of qualified plans, household employees, the underpayment of tax penalties, filing for claims of refund and penalty abatements. These items dicussed here are not as common and will help bring more clarity for you when they do arise.

Alternative Minimum Tax—Individuals

Recent legislation has extended certain tax benefits. These tax benefits the Alternative fuel vehicle refueling property credit and the deduction for mortgage insurance premiums.

Disaster tax relief was enacted for those impacted by certain Presidentially declared disasters. The tax benefits provided by this relief include a deduction against AMT of any net qualified disaster loss, even if you are claiming the standard deduction. You may be impacted by one of the Presidentially declared disasters eligible for this relief and it is in your best interest to get more information about disaster tax relief.

There is no AMT adjustment for medical expenses deducted on Schedule A (Form 1040). Public Law 115-97 extended the lower 7.5% adjusted gross income threshold for deducting medical expenses on Schedule A (Form 1040) to all taxpayers for 2017.

Line 2 of Form 6251 shows as "Reserved for future use" because no AMT adjustment for this lower rate is required under the new law for 2017.

Exemption amount

The exemption amount on Form 6251, line 29, has increased to $54,300 ($84,500 if married filing jointly or qualifying widow(er); $42,250 if married filing separately).

AMT tax brackets.

For 2017, the 26% tax rate applies to the first $187,800 ($93,900 if married filing separately) of taxable excess (the amount on line 30). This change is reflected in lines 31, 42, and 63.

Limit on itemized deductions.

You can’t deduct all of your itemized deductions for regular tax purposes if your adjusted gross income is more than: $156,900 if married filing separately, $261,500 if single, $287,650 if head of household, or $313,800 if married filing jointly or qualifying widow(er). This limit doesn’t apply for the AMT.

You Must File and attach Form 6251 to your return if any of the following statements is true.

1. Form 6251, line 31, is greater than line 34.

2. You claim any general business credit, and either line 6 (in Part I) or line 25 of Form 3800 is more than zero.

3. You claim the qualified electric vehicle credit (Form 8834), the personal use part of the alternative fuel vehicle refueling property credit (Form 8911), or the credit for prior year minimum tax (Form 8801).

4. The total of Form 6251, lines 8 through 27, is negative and line 31 would be greater than line 34 if you did not take into account lines 8 through 27.

Purpose of Form Use Form 6251 to figure the amount, if any, of your alternative minimum tax (AMT). The AMT is a separate tax that is imposed in addition to your regular tax. It applies to taxpayers who have certain types of income that receive favorable treatment, or who qualify for certain deductions, under the tax law. These tax benefits can significantly reduce the regular tax of some taxpayers with higher economic incomes. The AMT sets a limit on the amount these benefits can be used to reduce total tax.

Also use Form 6251 to figure your tentative minimum tax (Form 6251, line 33). You may need to know that amount to figure the tax liability limit on the credits specifically listed and affected by the AMT.

Figuring AMT Amounts

For the AMT, certain items of income, deductions, etc., receive different tax treatment than for the regular tax. Therefore, you will need to figure items for the AMT differently than you figured them for the regular tax. You figure AMT items by using the amount you calculated for the regular tax and refiguring it for the AMT. In some cases, it is easiest to refigure an item for AMT by completing a tax form or worksheet a second time using additional AMT instructions. You can label this additional tax form or worksheet “AMT” version. However, if you do complete an AMT version of a form or worksheet, don’t attach it to your tax return unless instructed to do so by the IRS.

You may have to attach an AMT Form 1116, Foreign Tax Credit, to your return. As you figure some deductions and credits for the AMT, carrybacks or carryforwards to other tax years may be different than what you figured for the regular tax. Examples are investment interest expense, a net operating loss, a capital loss, a passive activity loss, and the foreign tax credit. Your at-risk limits and basis amounts also may differ for the AMT.

Recordkeeping

You must keep records to support items reported on Form 6251 in case the IRS has questions about them. If the IRS examines your tax return, you may be asked to explain the items reported. Good records will help you explain any item and arrive at the correct AMT. Keep records that show how you figured income, deductions, etc. for the AMT. Also keep records of any items that you used to figure the AMT that differ from what you used to figure the regular tax. All proofs including departmental reproduction proofs must be kept in your records just in case.

Separately figure and track certain carrybacks, carryforwards, basis amounts, depreciation, and loss limitation amounts that differ between the AMT and the regular tax. If you refigure an item for AMT by completing an AMT version of a form or worksheet, keep a copy of that AMT form or worksheet for your records.

Partners and Shareholders

If you are a partner in a partnership or a shareholder in an S corporation, you must use Schedule K-1 to figure your adjustments or preferences from the partnership or S corporation to include on Form 6251.

Nonresident Aliens

If you are a nonresident alien and you disposed of U.S. real property interests at a gain, you must make a special computation. This would go in Form 6251 all the way to line 30 of the form. If your net gain from the disposition of U.S. real property interests and the amount on line 28 of Form 6251 are both greater than the tentative amount you figured for line 30, replace the amount on line 30 with the smaller of that net gain or the amount on line 28. Also, enter “RPI” on the dotted line next to line 30. This stands for Real Property Interest. Otherwise, don’t change line 30.

Credit for Prior Year Minimum Tax

 See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts,

If you paid AMT for 2016 or you had a minimum tax credit carryforward on your 2016 Form 8801, you must file Form 8801 to report this to the IRS. Likewise, if you pay AMT for 2017, you may be able to take a credit on Form 8801 for 2018.

Optional Write-Off for Certain Expenditures

There is no AMT adjustment for the following items if you elect for the regular tax to deduct them ratably over the period of time shown. You may be able to write-off these expenditures.

Circulation expenditures—3 years

Research and experimental expenditures—10 years

Mining exploration and development costs—10 years.

Intangible drilling costs—60 months.

Itemized Deductions

If you owe AMT, you may be able to lower your total tax (regular tax plus AMT) by claiming itemized deductions on Form 1040, even if your total itemized deductions are less than the standard deduction. This is because the standard deduction isn’t allowed for the AMT and, if you claim the standard deduction on Form 1040, you can’t claim itemized deductions for the AMT.

Alternative Minimum Taxable Income (AMTI)

To avoid any duplicate reporting of AMT income, any adjustment or preference for line 5, 19, or 20 of Form 6251 or for a tax shelter farm activity on line 27 of Form 6251 must not be taken into account in figuring the amount to enter for any other adjustment or preference. If your Form 1040, line 43, includes a write-in amount (such as a capital construction fund deduction for commercial fishermen), adjust line 1 by the write-in amount.

Net qualified disaster loss.

If you filed Schedule A just to claim an increased standard deduction on Form 1040 due to a loss you suffered related to property in a Presidentially declared disaster area, then enter the amount from Form 1040, line 41, even though it has been reduced by the standard deduction, and go to line 7 of Form 6251 to include the amount of the standard deduction (before it was increased by any net qualified disaster loss) on line 27. If you are filing Form 1040NR, enter the amount from Form 1040NR, line 39. If less than zero, enter as a negative amount.

On line 3 of Form 6251, enter enter the amount of all taxes from Schedule A (Form 1040), line 9, except any generation-skipping transfer taxes on income distributions. If you are filing Form 1040NR, enter the amount of all taxes from Schedule A (Form 1040NR), line 1, except any generation-skipping transfer taxes on income distributions.

Home Mortgage Interest Adjustment

Complete the Home Mortgage Interest Adjustment Worksheet to figure the amount to enter on this line. The definitions of certain terms used in the worksheet are as follows.

Eligible mortgage.

An eligible mortgage is a mortgage whose proceeds were used to buy, build, or substantially improve your main home or a second home that is a qualified dwelling. A mortgage whose proceeds were used to refinance another mortgage isn’t an eligible mortgage.

Qualified dwelling.

A qualified dwelling is any house, apartment, condominium, or mobile home not used on a transient basis.

Family.

Family includes only your brothers and sisters (whether by whole or half blood), your spouse, your ancestors, and your lineal descendants. Example. In 2017, Dave and Jennifer paid $10,000 in interest on a mortgage they took out to buy their home (an eligible mortgage). In May 2017, they refinanced that mortgage and paid $9,000 in interest through the rest of the year. The balance of the new mortgage is the same as the balance of the old mortgage. In July 2017, they obtained a home equity loan on their home and used the proceeds to buy a new car. They paid $5,000 in interest on the home equity loan in 2017. They enter the following amounts on the Home Mortgage Interest Adjustment Worksheet: $24,000 on line 1 ($10,000 plus $9,000 plus $5,000), $10,000 on line 2, $9,000 on line 3, -0- on line 4, $19,000 on line 5 ($10,000 plus $9,000), and $5,000 on line 6 ($24,000 minus $19,000).

Line 5—Miscellaneous Deductions If you are filing Form 1040NR, enter the amount from Schedule A (Form 1040NR), line 13.

Line 6—Overall Limit on Itemized Deductions

If Form 1040, line 38, is over $261,500 ($287,650 if head of household; $313,800 if married filing jointly or qualifying widow(er); or $156,900 if married filing separately), enter the amount from line 9 of the Itemized Deductions Worksheet in the Instructions for Schedule A (Form 1040). Enter it as a negative amount. -2- Instructions for Form 6251 (2017)

If Form 1040, line 38, isn’t more than the amount listed above for your filing status, enter -0-. Form 1040NR. Enter the amount from line 9 of the Itemized Deductions Worksheet in the instructions for Form 1040NR if you are filing Form 1040NR and line 37 of Form 1040NR is over the amount listed below for your filing status: $261,500 and you checked filing status box 1 or 2, $156,900 and you checked filing status box 3, 4, or 5, or $313,800 and you checked filing status box 6. Enter it as a negative amount. If Form 1040NR, line 37, isn’t more than the amount just listed for your filing status, enter -0-. Line 7—Refund of Taxes Include any refund from Form 1040, line 10 (or Form 1040NR, line 11), that is attributable to state or local income taxes. Also include any refunds received in 2017 and included in income on Form 1040, line 21, that are attributable to state or local personal property taxes or general sales taxes, foreign income taxes, or state, local, or foreign real property taxes. Enter the total as a negative amount. If you include an amount from Form 1040, line 21, you must enter a description and the amount next to the entry space for line 7. For example, if you include a refund of real property taxes, enter “real property” and the amount next to the entry space.

Line 8—Investment Interest

If you filled out Form 4952, Investment Interest Expense Deduction, for your regular tax, you will need to fill out a second Form 4952 for the AMT as follows. Step 1. Follow the Form 4952 instructions for line 1, but also include the following amounts when completing line 1. Any interest expense on Form 6251, line 4, that was paid or accrued on indebtedness attributable to property held for investment within the meaning of section 163(d)(5) (for example, interest on a home equity loan whose proceeds were invested in stocks or bonds). Any interest that would have been deductible if tax-exempt interest on private activity bonds were includible in gross income. Step 2. Enter your AMT disallowed investment interest expense from 2016 on line 2. Complete line 3. Step 3. When completing Part II, refigure the following amounts, taking into account all adjustments and preferences. Gross income from property held for investment.

Net gain from the disposition of property held for investment.

Net capital gain from the disposition of property held for investment.

Investment expenses.

Include on line 4a any tax-exempt interest income from private activity bonds that must be included on Form 6251, line 12. If you have any investment expenses that would have been deductible if the interest on the bonds were includible in gross income for the regular tax, you can use them to reduce the amount on line 4a or include them on line 5. On line 4g, enter the smaller of: 1. The amount from line 4g of your regular tax Form 4952, or 2. The total of lines 4b and 4e of this AMT Form 4952. Step 4. Complete Part III. Enter on Form 6251, line 8, the difference between line 8 of your AMT Form 4952 and line 8 of your regular tax Form 4952. If your AMT expense is greater, enter the difference as a negative amount.

Investment interest expense that isn’t an itemized deduction.

If you didn’t itemize deductions and you had investment interest expense, don’t enter an amount on Form 6251, line 8, unless you reported investment interest expense on Schedule E, Supplemental Income and Loss (Form 1040). If you did, follow the steps above for completing Form 4952. Allocate the investment interest expense allowed on line 8 of the AMT Form 4952 in the same way you did for the regular tax. Enter on Form 6251, line 8, the difference between the amount allowed on Schedule E for the regular tax and the amount allowed on Schedule E for the AMT.

Line 9—Depletion Refigure your depletion deduction for the AMT. To do so, use only income and deductions allowed for the AMT when refiguring the limit based on taxable income from the property under Home Mortgage Interest Adjustment Worksheet—Line 4 Keep for Your Records 1. Enter the total of the home mortgage interest you deducted on lines 10 through 12 of Schedule A (Form 1040) and any mortgage insurance premiums you deducted on line 13 of Schedule A (Form 1040) ..................... 1. 2. Enter the part, if any, of the interest included on line 1 above that was paid on an eligible mortgage (defined in the line 4 instructions). Include any mortgage insurance premiums included on line 1 above that were paid in connection with an eligible mortgage ........................... 2. 3. Enter the part, if any, of the interest included on line 1 above that was paid on a mortgage whose proceeds were used in a refinancing (including a second or later refinancing) of an eligible mortgage. Include any mortgage insurance premiums included on line 1 above that were paid in connection with such a mortgage. Don’t include any interest paid on (or any mortgage insurance premiums paid in connection with) the part of the balance of the new mortgage that exceeded the balance of the original eligible mortgage immediately before it was refinanced (or, if smaller, the balance of any prior refinanced mortgage immediately before that mortgage was refinanced) ...... 3. 4. Enter the part, if any, of the interest included on line 1 above that was paid on a mortgage: • Taken out before July 1, 1982, and • Secured, at the time the mortgage was taken out, by your main home or a qualified dwelling used by you or your family (see definitions). Don’t include any amount entered on line 2 or line 3 above ..................................... 4. 5. Add lines 2 through 4 ........................................ 5. 6. Subtract line 5 from line 1 and enter the result on Form 6251, line 4 ........ 6. Instructions for Form 6251 (2017) section 613(a) and the limit based on taxable income, with certain adjustments, under section 613A(d)(1). Also, your depletion deduction for mines, wells, and other natural deposits under section 611 is limited to the property's adjusted basis at the end of the year, as refigured for the AMT, unless you are an independent producer or royalty owner claiming percentage depletion for oil and gas wells under section 613A(c). Figure this limit separately for each property. When refiguring the property's adjusted basis, take into account any AMT adjustments you made this year or in previous years that affect basis (other than current year depletion). Enter the difference between the regular tax and AMT deduction. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.

Line 10—Net Operating Loss Deduction

If you are filing Form 1040NR, enter your net operating loss deduction from Form 1040NR, line 21, as a positive amount.
 

Line 11—Alternative Tax Net Operating Loss Deduction (ATNOLD)

The ATNOLD is the sum of the alternative tax net operating loss (ATNOL) carrybacks and carryforwards to the tax year, subject to the limitations. Figure your ATNOLD as follows. Your ATNOL for a loss year is the excess of the deductions allowed for figuring AMTI (excluding the ATNOLD) over the income included in AMTI. Figure this excess with the modifications in section 172(d), taking into account your AMT adjustments and preferences (that is, the section 172(d) modifications must be separately figured for the ATNOL). For example, the limitation of nonbusiness deductions to the amount of nonbusiness income must be separately figured for the ATNOL, using only nonbusiness income and deductions that are included in AMTI. Your ATNOLD may be limited. To figure the ATNOLD limitation, you must first figure your AMTI without regard to the ATNOLD and any domestic production activities deduction. To do this, first figure a tentative amount for line 9 by treating line 11 as if it were zero. Next, figure a tentative total of lines 1 through 27 using the tentative line 9 amount and treating line 11 as if it were zero. This is your AMTI figured without regard to the ATNOLD. Add any domestic production activities deduction to this tentative total. Your ATNOLD is limited to 90% of the result. However, the 90% limit doesn’t apply to an ATNOL that is attributable to qualified disaster losses before December 19, 2004 (as defined in section 172(j)), qualified Gulf Opportunity Zone losses (as defined in section 1400N(k)(2)), qualified recovery assistance losses (as defined in Pub. 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes), qualified disaster recovery assistance losses (as defined in Pub. 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas), or a 2008 or 2009 loss that you elected to carry back more than 2 years under section 172(b)(1)(H). Therefore, if an ATNOL that is carried back or carried forward to the tax year is attributable to any of those losses, the ATNOLD for the tax year is limited to the sum of: 1. The smaller of: a. The sum of the ATNOL carrybacks and carryforwards to the tax year attributable to net operating losses other than those losses described in 2a below, or b. 90% of AMTI for the tax year (figured without regard to the ATNOLD and any domestic production activities deduction, as discussed earlier), plus 2. The smaller of: a. The sum of the ATNOL carrybacks and carryforwards to the tax year attributable to qualified disaster losses, qualified Gulf Opportunity Zone losses, qualified recovery assistance losses, qualified disaster recovery assistance losses, and any 2008 or 2009 loss that you elected to carry back more than 2 years under section 172(b) (1)(H), or b. 100% of AMTI for the tax year (figured without regard to the ATNOLD and any domestic production activities deduction, as discussed earlier) reduced by the amount determined under (1). Enter on line 11 the smaller of the ATNOLD or the ATNOLD limitation. Enter it as a negative amount. Any ATNOL not used may be carried back 2 years or forward up to 20 years. In some cases, the carryback period is longer than 2 years; for details, see Pub. 536. The treatment of ATNOLs doesn’t affect your regular tax NOL. However, if you elected under section 172(b)(3) to forgo the carryback period for the regular tax, the election also applies for the AMT.

Line 12—Interest From Private Activity Bonds

Enter on line 12 interest income from “specified private activity bonds” reduced (but not below zero) by any deduction that would have been allowable if the interest were includible in gross income for the regular tax. Each payer of this type of interest should send you a Form 1099-INT showing the amount of this interest in box 9. Generally, the term “specified private activity bond” means any private activity bond (as defined in section 141) the interest on which isn’t includible in gross income for the regular tax, if the bond was issued after August 7, 1986. But specified private activity bonds generally don’t include any bonds issued in 2009 or 2010. See section 57(a)(5) for other exceptions and more details. Don’t include interest on qualified Gulf Opportunity Zone bonds or qualified Midwestern disaster area bonds. Exempt-interest dividends paid by a mutual fund or other regulated investment company are treated as interest income on specified private activity bonds to the extent the dividends are attributable to interest on the bonds received by the company, minus an allocable share of the expenses paid or incurred by the company in earning the interest. This amount should be reported to you on Form 1099-DIV in box 11.

If you are filing Form 8814, Parents' Election To Report Child's Interest and Dividends, include on this line any tax-exempt interest income from line 1b of that form that is a preference item.

Line 13—Qualified Small Business Stock

If you claimed the exclusion under section 1202 for gain on qualified small business stock acquired before September 28, 2010 and held more than 5 years, multiply the excluded gain (as shown on Form 8949 in column (g)) by 7% (0.07). Enter the result on line 13 as a positive amount. -4- Instructions for Form 6251 (2017)

Line 14—Exercise of Incentive Stock Options

For the regular tax, no income is recognized when an incentive stock option (ISO), as defined in section 422(b), is exercised. However, this rule doesn’t apply for the AMT. Instead, you generally must include on line 14 the excess, if any, of: 1. The fair market value of the stock acquired through exercise of the option (determined without regard to any lapse restriction) when your rights in the acquired stock first become transferable or when these rights are no longer subject to a substantial risk of forfeiture, over 2. The amount you paid for the stock, including any amount you paid for the ISO used to acquire the stock. Even if your rights in the stock aren’t transferable and are subject to a substantial risk of forfeiture, you may elect to include in AMT income the excess of the stock's fair market value (determined without regard to any lapse restriction) over the exercise price upon the transfer to you of the stock acquired through exercise of the option. You must make the election by the 30th day after the date of the transfer. See Pub. 525, Taxable and Nontaxable Income, for more details. If you acquired stock by exercising an ISO and you disposed of that stock in the same year, the tax treatment under the regular tax and the AMT is the same, and no adjustment is required. Increase your AMT basis in any stock acquired through the exercise of an ISO by the amount of the adjustment. Keep adequate records for both the AMT and regular tax so that you can figure your adjustment. See the instructions for line 17. Form 3921. If you received a Form 3921, it may help you figure your adjustment. Example. You exercised an ISO to acquire 100 shares of stock in 2017. Your rights in the acquired stock first became transferable on the date you exercised the ISO and weren’t subject to a substantial risk of forfeiture. You didn’t pay anything for the ISO. You didn’t sell the acquired stock during 2017. You received a Form 3921 that shows $10 in box 3 (the exercise price you paid for each share), $25 in box 4 (the fair market value of each share on the exercise date), and 100 shares in box 5 (the number of shares you acquired). To figure your adjustment, multiply the amount in box 4, $25, by the 100 shares in box 5. The result is $2,500, the fair market value of all the shares. Then multiply the amount in box 3, $10, by the 100 shares in box 5. The result is $1,000, the amount you paid for all the shares. Your adjustment is $1,500 ($2,500 − $1,000). Enter it on Form 6251, line 14.

Line 16—Large Partnerships

If you were a partner in an electing large partnership, enter the amount from Schedule K-1 (Form 1065-B), box 6. Take into account any amount from box 5 on Form 6251, line 19.

Line 17—Disposition of Property

Your AMT gain or loss from the disposition of property may be different from your gain or loss for the regular tax. This is because the property may have a different adjusted basis for the AMT. Use this line to report any AMT adjustment resulting from refiguring: 1. Gain or loss from the sale, exchange, or involuntary conversion of property reported on Form 4797, Sales of Business Property; 2. Casualty gain or loss to business or income-producing property reported on Form 4684, Casualties and Thefts; 3. Ordinary income from the disposition of property not already taken into account in (1) or (2) or on any other line on Form 6251, such as a disqualifying disposition of stock acquired in a prior year by exercising an incentive stock option; and 4. Capital gain or loss (including any carryover that is different for the AMT) reported on Form 8949, Sales and Other Dispositions of Capital Assets, or Schedule D (Form 1040), Capital Gains and Losses. First figure any ordinary income adjustment related to (3) above. Then, refigure Form 4684, Form 4797, Form 8949, and Schedule D for the AMT, if applicable, by taking into account any adjustments you made this year or in previous years that affect your basis or otherwise result in a different amount for the AMT. If you have a capital loss after refiguring Schedule D for the AMT, apply the $3,000 capital loss limitation separately to the AMT loss. Because the amount of your gains and losses may be different for the AMT, the amount of any capital loss carryover also may be different for the AMT. See the following example. To figure your AMT capital loss carryover, fill out an AMT Capital Loss Carryover Worksheet in the Schedule D instructions. For each of the four items listed earlier, figure the difference between the amount included in taxable income for the regular tax and the amount included in income for the AMT. Include the difference as a negative amount on line 17 if (a) both the AMT and regular tax amounts are zero or more and the AMT amount is less than the regular tax amount or (b) the AMT amount is a loss, and the regular tax amount is a smaller loss or is zero or more. Enter on line 17 the combined adjustments for the four items listed earlier. Example. On March 13, 2016, Victor Ash, whose filing status is single, paid $20,000 to exercise an incentive stock option (which was granted to him on January 3, 2015) to buy 200 shares of stock worth $200,000. The $180,000 difference between his cost and the value of the stock at the time he exercised the option isn’t taxable for the regular tax. His regular tax basis in the stock at the end of 2016 is $20,000. For the AMT, however, Ash must include the $180,000 as an adjustment on his 2016 Form 6251. His AMT basis in the stock at the end of 2016 is $200,000. On January 18, 2017, Ash sold 100 of the shares for $75,000. Because Ash didn’t hold these shares more than 1 year, that sale is a disqualifying disposition. For the regular tax, Ash has ordinary income of $65,000 ($75,000 minus his $10,000 basis in the 100 shares). Ash has no capital gain or loss for the regular tax resulting from the sale. For the AMT, Ash has no ordinary income, but has a short-term capital loss of $25,000 ($75,000 minus his $100,000 AMT basis in the 100 shares). On April 21, 2017, Ash sold the other 100 shares for $60,000. Because he held the shares for more than 1 year and more than 2 years had passed since the option was granted to him, the sale isn’t a disqualifying disposition. For the regular tax, Ash has a long-term capital gain of $50,000 ($60,000 minus his regular tax basis of $10,000). For the AMT, Ash has a long-term capital loss of $40,000 ($60,000 minus his AMT basis of $100,000). Ash has no other sales of stock or other capital assets for 2017. Ash enters a total negative adjustment of $118,000 on line 17 of his 2017 Form 6251, figured as follows: Ash figures a negative adjustment of $65,000 for the difference between the Instructions for Form 6251 (2017).

See Who Must File , earlier, to find out if you must attach Form 6251 to your return. Determine if you can carry back or carry forward your unused 2017 AMTFTC. See AMTFTC Carryback and Carryforward , later. If you can carry back or carry forward your unused 2017 AMTFTC, you will need to complete line 32 for your records. If the amount on line 34 is less than the amount on line 31, figure your AMTFTC and enter it on line 32. Figuring the AMTFTC. If you made an election to claim the foreign tax credit on your 2017 Form 1040 (or Form 1040NR) without filing Form 1116, your AMTFTC is the same as the foreign tax credit on Form 1040, line 48 (or Form 1040NR, line 46). Enter that amount on Form 6251, line 32. For more information about electing to claim your foreign tax credit without filing Form 1116, see the Instructions for Form 1116. Otherwise, figure your AMTFTC as follows. Step 1. Separate your foreign source income into categories. See the Instructions for Form 1116 for information about categories of income.

Complete a separate AMT Form 1116 for each separate category of income. Write “AMT” and specify the category of income in the top margin of each Form 1116. Figuring high-taxed income. When applying the separate categories of income, use the applicable AMT rate instead of the regular tax rate to determine if any income is “high-taxed.” Step 2. Complete Part I of each AMT Form 1116 using only income and deductions that are allowed for the AMT and attributable to sources outside the United States.

Simplified limitation election.

If you previously made or are making the simplified limitation election, skip Part I and go to Step 3. For more information about the simplified limitation election, see Simplified Limitation Election , later.

Foreign source qualified dividends and capital gains.

If you have any foreign source qualified dividends or foreign source capital gains (including any foreign source capital gain distributions) or losses, use the following instructions to determine whether you must make adjustments to those amounts before you include the amounts on line 1a or line 5 of the AMT Form 1116.

Foreign qualified dividends.

You must adjust your foreign source qualified dividends before you include those amounts on line 1a of the AMT Form 1116 if: Line 62 of Form 6251 is smaller than line 63, and Line 41 of Form 6251 is greater than zero. But you don’t need to make any adjustments if: You qualify for the adjustment exception under Qualified Dividends and Capital Gain Tax Worksheet (Individuals) or Adjustments to foreign qualified dividends under Schedule D Filers in the Instructions for Form 1116, and Line 41 of Form 6251 isn’t more than $187,800 ($93,900 if married filing separately or if you checked filing status box 3, 4, or 5 on Form 1040NR). Use your capital gains and losses as refigured for the AMT to determine whether your total amounts are less than the $20,000 threshold under the adjustment exception. If you qualify for the adjustment exception, your election also applies when you determine whether you must adjust your capital gain distributions or other capital gains or losses. It also applies to Step 4. To adjust your foreign source qualified dividends, multiply your foreign source qualified dividends in each separate category by 0.5357 if the foreign source qualified dividends are taxed at a rate of 15%, and by 0.7143 if they are taxed at a rate of 20%. Include the results on line 1a of the applicable AMT Form 1116. You adjust your foreign source qualified dividends taxed at the 0% rate by not including them on line 1a. Amounts taxed at the 0% rate are on line 11 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, line 9 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040NR instructions, or line 20 of the Schedule D Tax Worksheet. Don’t adjust the amount of any foreign source qualified dividends you elected to include on line 4g of AMT Form 4952.

Individuals with capital gain distributions only.

If you have no capital gains or losses other than capital gain distributions from box 2a of Form(s) 1099-DIV or substitute statement(s), you must adjust your foreign source capital gain distributions if you are required to adjust your foreign source qualified dividends under the rules just described or you would be required to adjust your foreign source qualified dividends if you had any. To adjust your foreign source capital gain distributions, multiply your foreign source capital gain distributions in each separate category by 0.5357 if the foreign source capital gain distributions are taxed at a rate of 15%, and by 0.7143 if they are taxed at a rate of 20%. Include the results on line 1a of the applicable AMT Form 1116. You adjust your foreign source capital gain distributions taxed at the 0% rate by not including them on line 1a. Amounts taxed at the 0% rate are on line 11 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, line 9 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040NR instructions, or line 20 of the Schedule D Tax Worksheet. Don’t adjust the amount of any foreign source capital gain distributions you elected to include on line 4g of AMT Form 4952.

Individuals with other capital gains or losses.

If any capital gain or loss is different for the AMT, use amounts as refigured for the AMT to complete this step. Use Worksheet A in the Instructions for Form 1116 to determine the adjustments you must make to your foreign source capital gains or losses (as refigured for the AMT) if you have foreign source capital gains or losses (as refigured for the AMT) in no more than two separate categories and any of the following apply. You aren’t required to make adjustments to your foreign source qualified dividends under the rules described earlier (or you wouldn’t be required to make those adjustments if you had foreign source qualified dividends). Line 15 or 16 of the AMT Schedule D (Form 1040) is zero or a loss. On the AMT Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, (a) line 3 of that worksheet minus the amount on Form 4952, line 4e, that you elected to include on Form 4952, line 4g, is zero or less, (b) line 7 of that worksheet is zero, or (c) line 25 of that worksheet is equal to or greater than line 26.

On the AMT Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040NR instructions, (a) line 3 of that worksheet is zero, (b) line 5 of that worksheet is zero, or (c) line 23 of that worksheet is equal to or greater than line 24. On the AMT Schedule D Tax Worksheet (Form 1040), (a) line 18 is zero, (b) line 9 is zero or less, or (c) line 43 is equal to or greater than line 44. Use Worksheet B in the Instructions for Form 1116 if you: Can’t use Worksheet A, Have foreign source capital gains and losses in no more than two separate categories, Didn’t have any item of unrecaptured section 1250 gain or 28% rate gain or loss for the AMT, and Don’t have any capital gains taxed at a rate of 0% or 20%. Instructions for Worksheets A and B. When you complete Worksheet A or Worksheet B, use foreign source capital gains and losses, as refigured for the AMT if necessary, and don’t use any foreign source capital gains you elected to include on line 4g of AMT Form 4952. If you are required to complete a Schedule D for the AMT, use line 16 of that AMT Schedule D to complete line 3 of Worksheet A or line 4 of the Line 2 Worksheet for Worksheet B. Use 0.5357 instead of 0.3788 to complete lines 11, 13, and 15 of Worksheet B and to complete lines 8, 11, and 17 of the Line 15 Worksheet for Worksheet B. If you don’t qualify to use Worksheet A or Worksheet B, use the instructions for Capital Gains and Losses in Pub. 514 to determine the adjustments you make.

When using the instructions in Pub. 514 to determine if you must adjust foreign source capital gains and losses, make the following substitutions. When the amount of any AMT gain is in the 15% rate group, multiply it by 0.5357 instead of 0.3788. When the amount of any AMT gain is in the 20% rate group, multiply it by 0.7143 instead of 0.5051. When the amount of any AMT gain is in the 25% rate group, multiply it by 0.8929 instead of 0.6313. When the amount of any AMT gain is in the 28% rate group, multiply it by 1.0 instead of 0.7071. Step 3. Complete Part II and lines 9 through 17 of the AMT Form 1116. Use your AMTFTC carryover, if any, on line 10. Simplified limitation election. If you previously made or are making the simplified limitation election, complete Part II and lines 9 through 14. Use your AMTFTC carryover, if any, on line 10. Skip lines 15 and 16. Enter on your AMT Form 1116, line 17, the same amount you entered on that line for the regular tax. Step 4. Enter the amount from line 28 of Form 6251 on line 18 of the AMT Form 1116 unless you must complete an AMT Worksheet for Line 18. In most cases, you must complete an AMT Worksheet for Line 18 if you completed Part III of Form 6251 and: Line 62 of Form 6251 is smaller than line 63, and Line 41 of Form 6251 is greater than zero. But even if you meet the requirements above, you don’t need to complete an AMT Worksheet for Line 18 if: You qualify for the adjustment exception under Qualified Dividends and Capital Gain Tax Worksheet (Individuals) or Adjustments to foreign qualified dividends under Schedule D Filers in the Instructions for Form 1116, and Line 41 of Form 6251 isn’t more than $187,800 ($93,900 if married filing separately or if you checked filing status box 3, 4, or 5 on Form 1040NR).

Note. Use your capital gains and losses as refigured for the AMT to determine whether your total amounts are less than the $20,000 threshold under the adjustment exception. If you have any foreign source qualified dividends or capital gains (or losses), then you must make the same adjustment exception election you made in Step 2. Instructions for AMT Worksheet for Line 18. If you must complete an AMT Worksheet for Line 18 for your AMT Form 1116, you will use the Worksheet for Line 18 in the Instructions for Form 1116 and do the following. 1. Enter the amount from Form 6251, line 28, on line 1 of the worksheet. 2. Skip lines 2 and 3 of the worksheet. 3. Enter the amount from Form 6251, line 60, on line 4 of the worksheet. 4. Multiply line 4 of the worksheet by 0.1071 (instead of 0.3687). Enter the result on line 5 of the worksheet. 5. Enter the amount from Form 6251, line 57, on line 6 of the worksheet. 6. Multiply line 6 of the worksheet by 0.2857 (instead of 0.4949). Enter the result on line 7 of the worksheet. 7. Enter the amount from Form 6251, line 54, on line 8 of the worksheet. 8. Multiply line 8 of the worksheet by 0.4643 (instead of 0.6212). Enter the result on line 9 of the worksheet. 9. Enter the amount from Form 6251, line 47, on line 10 of the worksheet. 10. Complete lines 11 and 12 of the worksheet as instructed on the worksheet. 11. Enter the amount from your AMT Worksheet for Line 18 on your AMT Form 1116, line 18. Step 5. Enter the amount from Form 6251, line 31, on the AMT Form 1116, line 20. Complete lines 19, 21, and 22 of the AMT Form 1116. Step 6. Complete Part IV of the first AMT Form 1116 only. Enter on Form 6251, line 32, the amount from line 30 of the first AMT Form 1116. Attach to your tax return, after Form 6251, all AMT Forms 1116 you used to figure your AMTFTC. But don’t attach AMT Forms 1116 if your AMTFTC is the same as your regular tax foreign tax credit. AMTFTC Carryback and Carryforward If your AMTFTC is limited, the unused amount generally may be carried back or forward according to section 904(c). No AMTFTC carryback or carryfor- ward allowed in 2017. If you made the election to claim the foreign tax credit on your 2017 Form 1040 (or Form 1040NR) without filing Form 1116, any unused AMTFTC for 2017 can’t be carried back or forward. In addition, you can’t claim any unused AMTFTC from another year in 2017.

Simplified Limitation Election

You may elect to use a simplified section 904 limitation to figure your AMTFTC. If you do, when figuring your AMTFTC, you will use the same net foreign source income for AMT that you used for regular tax. (The amount on line 17 of your AMT Form 1116 will be the same as the amount on line 17 of your regular tax Form 1116.)

You must make the election for the first tax year after 1997 for which you claim an AMTFTC. If you don’t make the election for that year, you may not make it for a later year. Once made, the election applies to all later tax years and may be revoked only with IRS consent. Line 34 If you used Schedule J, Income Averaging for Farmers and Fishermen, to figure your tax on Form 1040, line 44 (or Form 1040NR, line 42), you must refigure that tax (including any tax from Form 8814) without using Schedule J before completing this line. This is only for Form 6251; don’t change the amount on Form 1040, line 44 (or Form 1040NR, line 42). Form 1040NR. If you are filing Form 1040NR, add Form 1040NR, line 42 (minus any tax from Form 4972, Tax on Lump-Sum Distributions) and Form 1040NR, line 44. Subtract from the result any foreign tax credit from Form 1040NR, line 46. If you used Schedule J to figure your tax on Form 1040NR, line 42, refigure that tax without using Schedule J before completing Form 6251, line 34 (see preceding paragraph). Line 35 If you are filing Form 1040NR, enter the amount from line 35 on Form 1040NR, line 43.

Part III—Tax Computation Using Maximum Capital Gains Rates

Lines 37, 38, and 39 Determine if any of the following statements apply. 1. The gain or loss from any transaction reported on Form 8949 or Schedule D is different for the AMT (for example, because of a different basis for the AMT due to depreciation adjustments, an incentive stock option adjustment, or a different AMT capital loss carryover from 2016). 2. You didn’t complete either the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet because Form 1040, line 43 (or Form 1040NR, line 41), is zero. 3. You received a Schedule K-1 (Form 1041) that shows an amount in box 12 with code B, C, D, E, or F. Then, use the following instructions that apply to you. If none of the statements apply, go to None of the statements apply , later. If only statement (2) applies, go to Only statement (2) applies , later. If statement (3) applies (by itself or in combination with statements (1) or (2)), go to Beneficiaries of estates or trusts first, then go to Statement (1) or (3) applies , later. For all other situations, go to Statement (1) or (3) applies , later. None of the statements apply. If (1), (2), or (3) do not apply, then for Part III of these instructions, the AMT versions of your Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Worksheet, Unrecaptured Section 1250 Gain Worksheet, 28% Rate Gain Worksheet, and Schedule D will be the same as those you used for regular tax purposes. Use the regular tax amounts to complete lines 37, 38, and 39. If you filed Form 2555 or Form 2555-EZ, see Forms 2555 and 2555-EZ , later, for additional modifications you may have to make before entering amounts on lines 37, 38, and 39. Statement (1) or (3) applies. If (1) applies, complete all of the following steps. If (3) applies, but (1) does not, complete steps 2 through 4 only. Step 1. Complete an AMT Form 8949 or, if applicable, lines 1a and 8a of an AMT Schedule D, by refiguring, for example, your basis for the AMT. Step 2. Complete lines 1b through 20 of an AMT Schedule D. Step 3. Complete lines 2 through 6 of an AMT Qualified Dividends and Capital Gain Tax Worksheet or lines 2 through 13 of an AMT Schedule D Worksheet, whichever applies. (See line 20 of your AMT Schedule D, if you completed one, to determine which worksheet applies.) Complete line 5 of the AMT Qualified Dividends and Capital Gain Tax Worksheet or lines 3 and 4 of the AMT Schedule D Tax Worksheet, whichever applies, using your AMT Form 4952. Step 4.

Use amounts from the AMT Qualified Dividends and Capital Gain Tax Worksheet or AMT Schedule D Worksheet, whichever applies, and the AMT Schedule D to complete lines 37, 38, and 39. If you filed Form 2555 or Form 2555-EZ, see Forms 2555 and 2555-EZ , later, for additional modifications you may have to make before entering amounts on lines 37, 38, and 39. Only statement (2) applies. If (2) applies, but (1) and (3) do not, complete the following steps.

Step 1. Complete lines 2 through 6 of an AMT Qualified Dividends and Capital Gain Tax Worksheet or lines 2 through 13 of an AMT Schedule D Worksheet, whichever applies. (See line 20 of your Schedule D to determine which worksheet applies.) Complete line 5 of the AMT Qualified Dividends and Capital Gain Tax Worksheet or lines 3 and 4 of the AMT Schedule D Tax Worksheet, whichever applies, using your AMT Form 4952. Step 2. Use amounts from the AMT Qualified Dividends and Capital Gain Tax Worksheet or AMT Schedule D Worksheet, whichever applies, and the Schedule D you used for regular tax to complete lines 37, 38, and 39. If you filed Form 2555 or Form 2555-EZ, see Forms 2555 and 2555-EZ , later, for additional modifications you may have to make before entering amounts on lines 37, 38, and 39. Keep the AMT Form 8949, AMT Schedule D, and the applicable AMT worksheet for your records, but don’t attach any of them to your tax return.

Note. Don’t decrease your section 1202 exclusion by the amount, if any, on line 13. Forms 2555 and 2555-EZ. If you are filing either of these forms and you have an AMT capital gain excess, you must complete Part III of Form 6251 with certain modifications. To see if you have an AMT capital gain excess, subtract Form 6251, line 30, from line 6 of your AMT Qualified Dividends and Capital Gain Tax Worksheet or line 10 of your AMT Schedule D Tax Worksheet, whichever applies. If the result is greater than zero, that amount is your AMT capital gain excess. If you have AMT capital gain excess, figure the amounts to enter on lines 37, 38, and 39 of Form 6251 using the following modifications (only for purposes of Part III of Form 6251). 1. Reduce the amount you would otherwise enter on line 3 of your AMT Qualified Dividends and Capital Gain Tax Worksheet or line 9 of your AMT Schedule D Tax Worksheet (but not below zero) by your AMT capital gain excess. 2. Reduce the amount you would otherwise enter on line 2 of your AMT Qualified Dividends and Capital Gain Tax Worksheet or line 6 of your AMT Schedule D Tax Worksheet (but not TIP -14- Instructions for below zero) by any of your AMT capital gain excess not used in (1). 3. Reduce the amount on your AMT Schedule D (Form 1040), line 18, (but not below zero) by your AMT capital gain excess. 4. Include your AMT capital gain excess as a loss on line 16 of your AMT Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D (Form 1040). Also see the instructions for line 44.

Beneficiaries of estates or trusts.

If you received a Schedule K-1 (Form 1041) that shows an adjustment in box 12, follow the instructions in the following table. IF the code in box 12 is... THEN include that adjustment in figuring the amount on... B line 2 of an AMT Qualified Dividends and Capital Gain Tax Worksheet or an AMT Schedule D Tax Worksheet, whichever applies. C line 5 of an AMT Schedule D. D line 12 of an AMT Schedule D. E line 11 of an AMT Unrecaptured Section 1250 Gain Worksheet. F line 4 of an AMT 28% Rate Gain Worksheet. Form 1040NR. If you are filing Form 1040NR, enter on Form 6251, line 37, the amount from line 4 of the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040NR, line 42, or the amount from line 13 of the Schedule D Tax Worksheet in the Instructions for Schedule D (Form 1040), whichever applies (as refigured for the AMT, if necessary). Line 42 If you are filing Form 1040NR and Form 6251, line 41, is $187,800 or less ($93,900 or less if you checked filing status box 3, 4, or 5), multiply line 41 by 26% (0.26). Otherwise, multiply line 41 by 28% (0.28) and subtract $3,756 ($1,878 if you checked filing status box 3, 4, or 5) from the result.

Line 43 If you are filing Form 1040NR, enter $37,950 ($75,900 if you checked filing status box 6). Line 44 If you are filing Form 1040NR, enter on Form 6251, line 44, the amount from line 5 of the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040NR, line 42, or the amount from line 14 of the Schedule D Tax Worksheet in the instructions for Schedule D (Form 1040), whichever applies (as figured for the regular tax). If you didn’t complete either worksheet for the regular tax, enter the amount from Form 1040NR, line 41; if zero or less, enter -0-. Forms 2555 and 2555-EZ. If you are filing either of these forms, the amount you enter on line 44 will take into account your regular tax capital gain excess, if any. Do not refigure it using the amount of your AMT capital gain excess.

If you are filing Form 2555 or Form 2555-EZ and you didn’t complete either the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet for the regular tax, enter the amount from line 3 of the Foreign Earned Income Tax Worksheet in the Form 1040 instructions (as figured for the regular tax).

Line 49

If you are filing Form 1040NR, enter on Form 6251, line 49, the amount from the list below that corresponds to your filing status. $418,400 if you checked filing status box 1 or 2, $235,350 if you checked filing status box 3, 4, or 5, or $470,700 if you checked filing status box 6. Line 51 If you are filing Form 1040NR, enter on Form 6251, line 51, the amount from line 5 of the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040NR, line 42, or the amount from line 19 of the Schedule D Tax Worksheet in the instructions for Schedule D (Form 1040), whichever applies (as figured for the regular tax). If you didn’t complete either worksheet for the regular tax, enter the amount from Form 1040NR, line 41; if zero or less, enter -0-. Forms 2555 and 2555–EZ. If you are filing either of these forms, the amount you enter on line 51 will take into account your regular tax capital gain excess, if any. Do not refigure it using the amount of your AMT capital gain excess. If you are filing Form 2555 or Form 2555-EZ and you didn’t complete either the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet for the regular tax, enter the amount from Form 6251, line 44.

Line 63

If you are filing Form 1040NR and Form 6251, line 36, is $187,800 or less ($93,900 or less if you checked filing status box 3, 4, or 5), multiply line 36 by 26% (0.26). Otherwise, multiply line 36 by 28% (0.28) and subtract $3,756 ($1,878 if you checked filing status box 3, 4, or 5) from the result. Instructions for Form 6251 (2017) -15-

Distribution Plans

August 23, 2017, for the Hurricane Harvey disaster area. For this purpose, the Hurricane Harvey disaster area includes the states of Texas and Louisiana. b. September 4, 2017, for the Hurricane Irma disas- ter area. For this purpose, the Hurricane Irma dis- aster area includes the U.S. Virgin Islands, Puerto Rico, and the states of Georgia, Florida, and South Carolina. c. September 16, 2017, for the Hurricane Maria dis- aster area. For this purpose, the Hurricane Maria disaster area includes Puerto Rico and the U.S. Virgin Islands. d. October 8, 2017, to December 31, 2017, for the California wildfire disaster area. For this purpose, the California wildfire disaster area includes the state of California. 3. You sustained an economic loss because of Hurri- cane Harvey or Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, or the California wildfires. If (1) through (3) above apply, you can generally desig- nate any distribution (including a periodic payment or a re- quired minimum distribution) from an eligible retirement plan as a qualified disaster distribution, regardless of whether the distribution was made on account of Hurri- cane Harvey or Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, or the California wildfires. Qualified 2017 disaster distributions are permitted without regard to your need or the actual amount of your economic loss , descri- bed later. Distribution limit. The total of your qualified disaster dis- tributions from all plans is limited to $100,000 for Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma or Hurricane Maria, and $100,000 for the California wildfires. If you take distributions from more than one type of plan, such as a 401(k) plan and an IRA, and the total amount of your distributions exceeds $100,000 for either category, you may allocate the $100,000 limit among the plans by any reasonable method you choose. A reduction or offset (after August 22, 2017, for Hurri- cane Harvey or Tropical Storm Harvey; after September 3, 2017, for Hurricane Irma; after September 15, 2017, for Hurricane Maria; or after October 7, 2017, for California wildfires) of your account balance in an eligible retirement plan in order to repay a plan loan can also be designated as a qualified disaster distribution.

Example. In 2017, you received a distribution of $50,000. In 2018, you receive a distribution of $125,000. Both distributions meet the requirements for a qualified disaster distribution. If you decide to treat the entire $50,000 received in 2017 as a qualified disaster distribution, only $50,000 of the 2018 distribution can be treated as a qualified disaster distribution.

Economic loss.

Qualified disaster distributions are permitted without regard to your need or the actual amount of your economic loss. Examples of an economic loss include, but aren’t limited to: 1. Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; 2. Loss related to displacement from your home; or 3. Loss of livelihood due to temporary or permanent layoffs.

Eligible retirement plan.

An eligible retirement plan can be any of the following. A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). A qualified annuity plan. A tax-sheltered annuity contract. A governmental section 457 deferred compensation plan. A traditional, SEP, SIMPLE, or Roth IRA.

Main home.

Generally, your main home is the home where you live most of the time. A temporary absence due to special circumstances, such as illness, education, busi- ness, military service, evacuation, or vacation, won’t change your main home.

Taxation of Qualified Disaster Distributions

Qualified disaster distributions are included in income in equal amounts over 3 years. However, if you elect, you can include the entire distribution in your income in the year it was received. Qualified disaster distributions aren’t subject to the 10% additional tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). Also, if you are receiving substantially equal periodic payments from a qualified retirement plan, the receipt of a qualified disaster distribution from that plan will not be treated as a change in those substantially equal payments merely be- cause of the qualified disaster distribution. However, any distributions you received in excess of the $100,000 quali- fied disaster distribution limit may be subject to the additional tax on early distributions.

Repayment of Qualified Disaster Distributions

If you choose, you generally can repay any portion of a qualified disaster distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Also, you can repay a qualified disaster distribution made on account of a hardship from a retirement plan.

However, see Exceptions below for qualified disaster distributions you cannot repay.

You have 3 years from the day after the date you received the distribution to make a repayment. Amounts that are repaid are treated as a trustee-to-trustee transfer and Publication 575 (2017) are not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a rollover. See Form 8915B, for more information on how to report repayments.

Exceptions.

You cannot repay the following types of distributions. 1. Qualified disaster distributions received as a beneficiary (other than as a surviving spouse). 2. Required minimum distributions. 3. Periodic payments (other than from an IRA) that are for: a. A period of 10 years or more, b. Your life or life expectancy, or c. The joint lives or joint life expectancies of you and your beneficiary. Repayment of distributions if reporting under the 1-year election. If you elect to include all of your quali- fied disaster distributions received in a year in income for that year and then repay any portion of the distributions during the allowable 3-year period, the amount repaid will reduce the amount included in income for the year of dis- tribution. If the repayment is made after the due date (in- cluding extensions) for your return for the year of distribu- tion, you will need to file a revised Form 8915B with an amended return. See Amending Your Return , later. Example. Maria received a $45,000 qualified disaster distribution on November 1, 2017. After receiving reimbursement from her insurance company for a casualty loss, Maria repays $45,000 to an IRA on March 31, 2018. She reports the distribution and the repayment on Form 8915B, which she files with her timely filed 2017 tax re- turn. As a result, no portion of the distribution is included in income on her return. Repayment of distributions if reporting under the 3-year method. If you are reporting the qualified disaster distribution in income over a 3-year period and you repay any portion of the qualified disaster distribution to an eligi- ble retirement plan before filing your 2017 tax return, the repayment will reduce the portion of the distribution that is included in income in 2017. If you repay a portion after the due date (including extensions) for filing your 2017 return, the repayment will reduce the portion of the distribution that is included in income in 2018. If you repay a portion after the due date (including extensions) for filing your 2018 return, the repayment will reduce the portion of your distribution that is includible on your 2019 return. If, during a year in the 3-year period, you repay more than is other- wise includible in income for that year, the excess may be carried forward or (after 2017) back to reduce the amount included in income for that year. Example. John received a $90,000 qualified disaster distribution from his pension plan on November 15, 2017. He doesn’t elect to include the entire distribution in his 2017 income. Without any repayments, he would include $30,000 of the distribution in income on each of his 2017, 2018, and 2019 returns. On November 10, 2018, John re- pays $45,000 to an IRA. He makes no other repayments during the allowable 3-year period. John may report the distribution and repayment in either of the following ways. Report $0 in income on his 2018 return, and carry the $15,000 excess repayment ($45,000 - $30,000) for- ward to 2019 and reduce the amount reported in that year to $15,000, or Report $0 in income on his 2018 return, report $30,000 on his 2019 return, and file an amended re- turn for 2017 to reduce the amount previously inclu- ded in income to $15,000 ($30,000 - $15,000).

Amending Your Return

If, after filing your original return, you make a repayment, the repayment may reduce the amount of your qualified disaster distributions that were previously included in income. Depending on when a repayment is made, you may need to file an amended tax return to refigure your taxable income. If you make a repayment by the due date of your original return (including extensions), include the repayment on your amended return. If you make a repayment after the due date of your original return (including extensions), include it on your amended return only if either of the following apply. You elected to include all of your qualified disaster distributions in income in the year of the distributions (not over 3 years) on your original return. The amount of the repayment exceeds the portion of the qualified disaster distributions that are includible in income for 2018 and you choose to carry the excess back to your 2017 tax return. Example. You received a qualified disaster distribution in the amount of $90,000 on October 15, 2017. You choose to spread the $90,000 over 3 years ($30,000 in in- come for 2017, 2018, and 2019). On November 19, 2018, you make a repayment of $45,000. For 2018, none of the qualified disaster distribution is includible in income. The excess repayment of $15,000 can be carried back to 2017. Also, rather than carrying the excess repayment back to 2017, you can carry it forward to 2019. File Form 1040X to amend a return you have already filed. Generally, Form 1040X must be filed within 3 years after the date the original return was filed, or within 2 years after the date the tax was paid, whichever is later.

Repayment of Qualified Distributions for the Purchase or Construction of a Main Home

If you received a qualified distribution to purchase or construct a main home in a Hurricane Harvey, Hurricane Irma, or Hurricane Maria disaster area, you can repay all or any part of that distribution to an eligible retirement plan during the period beginning on August 23, 2017, and ending on February 28, 2018. If you received a qualified distribution to purchase or construct a main home in the California wildfire disaster area, you can repay all or any part of that distribution to an eligible retirement plan during the period beginning on October 8, 2017, and ending on June 30, 2018. To be a qualified distribution, the distribution must meet all of the following requirements. The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-shel- tered annuity contract, or a qualified first-time home- buyer distribution from an IRA. The distribution was received after February 28, 2017, and before September 21, 2017, if in a Hurricane Har- vey, Hurricane Irma, or Hurricane Maria disaster area. The distribution was received after March 31, 2017, and before January 1, 2018, if in the California wildfire disaster area. The distribution was to be used to purchase or con- struct a main home in the Hurricane Harvey, Hurri- cane Irma, Hurricane Maria, or California disaster area that was not purchased or constructed because of Hurricane Harvey, Hurricane Irma, Hurricane Maria, or the California wildfires. Any amount that is repaid before March 1, 2018 (or July 1, 2018, if in the California wildfire disaster area), is treated as a trustee-to-trustee transfer and is not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not consid- ered a rollover. A qualified distribution not repaid before March 1, 2018 (or July 1, 2018, if in the California wildfire disaster area), may be taxable for 2017 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. You must file Form 8915B if you received a qualified distribution that you repaid, in whole or in part, before March 1, 2018 (or July 1, 2018, if in the California wildfire disaster area). Loans From Qualified Plans As described further, below, the following special rules are available to qualified individuals. Increases to the limits for loans from employer retire- ment plans. A 1-year suspension for payments due on plan loans. Qualified individual. You are a qualified individual if any of the following apply. Your main home on August 23, 2017, was located in the Hurricane Harvey disaster area and you had an economic loss because of Hurricane Harvey or Tropi- cal Storm Harvey. Your main home on September 4, 2017, was located in the Hurricane Irma disaster area and you had an economic loss because of Hurricane Irma. Your main home on September 16, 2017, was located in the Hurricane Maria disaster area and you had an economic loss because of Hurricane Maria. Your main home was located in the California wildfire disaster area during any portion of the period from Oc- tober 8, 2017, to December 31, 2017, and you had an economic loss because of the California wildfires.

Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent lay- offs. Limits on plan loans. The general $50,000 limit on plan loans may be increased to $100,000 by the plan adminis- trator. In addition, the general loan limit based on 50% of your vested accrued benefit may be increased to 100% of that benefit. The higher limits apply only to loans made during the period beginning on September 29, 2017 (or February 9, 2018, if in the California wildfire disaster area), and ending on December 31, 2018. One-year suspension of plan loan payments. Pay- ments on plan loans due during the period beginning on the qualified beginning date and ending on December 31, 2018, may be suspended for 1 year (suspension period) by the plan administrator. The qualified beginning date is: August 23, 2017, if your main home was located in the Hurricane Harvey area. September 4, 2017, if your main home was located in the Hurricane Irma disaster area. September 16, 2017, if your main home was located in the Hurricane Maria disaster area. October 8, 2017, if your main home was located in the

California wildfire disaster area.

If you are a qualified individual based on more than one disaster, use the suspension period with the earliest beginning date.

Information for Eligible Retirement Plans

A plan administrator may choose whether to treat a distribution as a qualified 2017 disaster distribution or whether to accept a rollover of a qualified disaster distribution and may develop reasonable procedures for determining whether distributions are qualified disaster distributions. However, the treatment of qualified disaster distributions must be consistent under each plan. The payment of a qualified disaster distribution to an individual must be reported on Form 1099-R, Distributions From Pensions,

Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

This reporting is required even if the individual recontributes the qualified disaster distribution to the same plan in the same year. If a payer is treating the payment as a qualified disaster distribution and no other appropriate code applies, the payer is permitted to use distribution code 2 (early distribution, exception applies) in box 7 of Form 1099-R. However, a payer in this case is also permitted to use distribution code 1 (early distribu- tion, no known exception) in box 7 of Form 1099-R.

Household Employer's Tax

Social security and Medicare tax for 2017.

The social security tax rate is 6.2% each for the employee and employer, unchanged from 2016. The social security wage base limit is $127,200.The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2016. There is no wage base limit for Medicare tax. Social security and Medicare taxes apply to the wages of household employees you pay $2,000 or more in cash in 2017.  

Qualified parking exclusion and commuter transportation benefit.

For 2017, the monthly exclusion for qualified parking is $255 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $255.

New certification program for professional employer organizations.

The Tax Increase Prevention Act of 2014 required the IRS to establish a voluntary certification program for professional employer organizations (PEOs). PEOs handle various payroll administration and tax reporting responsibilities for their business clients and are typically paid a fee based on payroll costs. To become and remain certified under the certification program, certified professional employer organizations (CPEOs) must meet tax status, background, experience, business location, financial reporting, bonding, and other requirements described in sections 3511 and 7705 and related published guidance. The IRS began accepting applications for PEO certification in July 2016. Certification as a CPEO affects the employment tax liabilities of both the CPEO and its customers. A CPEO is generally treated as the employer of any individual performing services for a customer of the CPEO and covered by a contract described in section 7705(e)(2) between the CPEO and the customer (CPEO contract), but only for wages and other compensation paid to the individual by the CPEO.  

Filing due Date Forms W-2 and Form W3

Filing due date for 2017 Forms W-2 and W-3. Both paper and electronically filed 2017 Forms W-2 and W-3 must be filed with the SSA by January 31, 2018.

Credit reduction states.

A state that hasn't repaid money it borrowed from the federal government to pay unemployment benefits is a "credit reduction state." The Department of Labor (DOL) determines these states. If you paid any wages that are subject to the unemployment compensation laws in any credit reduction state, your federal unemployment (FUTA) tax credit is reduced.  

Medicaid waiver payments.

Notice 2014-7 provides that certain Medicaid waiver payments are excludable from income for federal income tax purposes.

Outsourcing payroll duties.

Unless the wages and other compensation paid to the individual performing services for you are paid by a CPEO and are covered by a contract described in section 7705(e)(2) between you and a CPEO (CPEO contract), you're responsible to ensure that tax returns are filed and deposits and payments are made, even if you contract with a third party to perform these acts. You remain responsible if the third party fails to perform any required action. If you choose to outsource any of your payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third-party payer, such as a payroll service provider or reporting agent, visit IRS.gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. 

Do You Have a Household Employee?

You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it doesn't matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. It also doesn't matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.

If you have a household employee in 2017, you may need to pay state and federal employment taxes for 2017. You generally must add your federal employment taxes to the income tax that you will report on your 2017 federal income tax return. 

For example, you pay Betty Shore to babysit your child and do light housework 4 days a week in your home. Betty follows your specific instructions about household and child care duties. You provide the household equipment and supplies that Betty needs to do her work. Betty is your household employee.

Household work.

Household work is work done in or around your home. Some examples of workers who do household work are:  

Babysitters, Butlers, Caretakers, Cooks, Domestic workers, Drivers, Health aides, House cleaning workers, Housekeepers, Maids, Nannies, Private nurses, and Yard workers.

Workers who aren't your employees.

If only the worker can control how the work is done, the worker isn't your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business. Furthermore, a worker who performs child care services for you in his or her home generally isn't your employee. Additionally, if an agency provides the worker and controls what work is done and how it is done, the worker isn't your employee. 

For example, you made an agreement with John Peters to care for your lawn. John runs a lawn care business and offers his services to the general public. He provides his own tools and supplies, and he hires and pays any helpers he needs. Neither John nor his helpers are your household employees.

Can Your Employee Legally Work in the United States?

It is unlawful for you knowingly to hire or continue to employ an alien who can’t legally work in the United States. When you hire a household employee to work for you on a regular basis, you and the employee must complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. No later than the first day of work, the employee must complete the employee section of the form by providing certain required information and attesting to his or her current work eligibility status in the United States. You must complete the employer section by examining documents presented by the employee as evidence of his or her identity and employment eligibility. Acceptable documents to establish identity and employment eligibility are listed on Form I-9. You should keep the completed Form I-9 in your own records. Don't submit it to the IRS, the USCIS, or any other government or other entity. The form must be kept available for review upon notice by an authorized U.S. Government official.

Do You Need To Pay Employment Taxes?

If you have a household employee, you may need to withhold and pay social security and Medicare taxes, pay federal unemployment tax, or both. You don't need to withhold federal income tax from your household employee's wages. But if your employee asks you to withhold it, you can.  

If you need to pay social security, Medicare, or federal unemployment tax or choose to withhold federal income tax make sure you follow the rules deligently. You may not need to pay social security, Medicare, or federal unemployment tax. Also, you may not choose to withhold federal income tax.

State employment taxes.

You should contact your state unemployment tax agency to find out whether you need to pay state unemployment tax for your household employee. For a list of state unemployment tax agencies, visit the U.S. Department of Labor's website at workforcesecurity.doleta.gov/unemploy/agencies.asp. You should also determine if you need to pay or collect other state employment taxes or carry workers' compensation insurance.

Consequences of not paying employment taxes.

If you have a household employee and you're required to withhold and pay employment taxes and you don't, you will generally be liable for the employment taxes that you should've withheld and paid. See section 2 in Pub. 15 for additional information. Interest and penalties may also be charged. You may have to pay a penalty if you don't give Forms W-2 to your employees or file Copy A of the forms with the SSA by the due dates. You may also have to pay a penalty if you don't show your employee's SSN on Form W-2 or don't provide correct information on the form.

Table 1. Do You Need To Pay Employment Taxes?

IF you ...             THEN you need to ...

A–          Pay cash wages of $2,000 or more in 2017 to any one household employee.          Withhold and pay social security and Medicare taxes.

    The taxes are 15.3%1 of cash wages.

    Your employee's share is 7.65%1. (You can choose to pay it yourself and not withhold it.)

    Your share is 7.65%.

              Don't count wages you pay to—

    Your spouse,

    Your child under the age of 21,

    Your parent (see Wages not counted, later, for an exception), or

    Any employee under the age of 18 at any time in 2017 (see Wages not counted, later, for an exception).

B–          Pay total cash wages of $1,000 or more in any calendar quarter of 2016 or 2017 to household employees. Pay federal unemployment tax.

    The tax is 6% of cash wages.

    Wages over $7,000 a year per employee aren't taxed.

    You also may owe state unemployment tax.

              Don't count wages you pay to—

    Your spouse,

    Your child under the age of 21, or

    Your parent.

1 In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. You’re required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold.

Note. If neither A nor B above applies, you don't need to pay any federal employment taxes. But you may still need to pay state employment taxes.

Table 2. Household Employer's Checklist

    You may need to do the following things when you have a household employee.

When you hire a household employee:                □ Find out if the person can legally work in the United States.

□ Find out if you need to withhold and pay federal taxes.

□ Find out if you need to withhold and pay state taxes.

When you pay your household employee:          □ Withhold social security and Medicare taxes.

□ Withhold federal income tax.

□ Decide how you will make tax payments.

□ Keep records.

By January 31, 2018:      □ Get an employer identification number (EIN).

□ Give your employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement.

□ Send Copy A of Form W-2 with Form W-3 to the Social Security Administration (SSA). Don't send Form W-2 to the SSA if you didn't withhold federal income tax and the social security and Medicare wages were below $2,000 for 2017.

By April 17, 2018:            □ File Schedule H (Form 1040), Household Employment Taxes, with your 2017 federal income tax return (Form 1040, 1040NR, 1040-SS, or 1041).

If you don't have to file a return, file Schedule H by itself.

Social Security and Medicare Taxes

The social security tax pays for old-age, survivors, and disability benefits for workers and their families.

The Medicare tax pays for hospital insurance.

Both you and your household employee may owe social security and Medicare taxes. Your share is 7.65% (6.2% for social security tax and 1.45% for Medicare tax) of the employee's social security and Medicare wages. Your employee's share is also 7.65% (6.2% for social security tax and 1.45% for Medicare tax). In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. You’re required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold.

You’re responsible for payment of your employee's share of the taxes as well as your own. You can either withhold your employee's share from the employee's wages or pay it from your own funds. If you decide to pay the employee's share from your own funds, see Not withholding the employee's share, later. Pay the taxes as discussed under How Do You Make Tax Payments, later. Also, see What Forms Must You File, later. 

Social security and Medicare wages.

You figure social security and Medicare taxes on the social security and Medicare wages you pay your employee. If you pay your household employee cash wages of $2,000 or more in 2017, all cash wages you pay to that employee in 2017 (regardless of when the wages were earned) up to $127,200 are social security wages and all cash wages are Medicare wages. However, any noncash wages you pay don't count as social security and Medicare wages.

If you pay the employee less than $2,000 in cash wages in 2017, none of the wages you pay the employee are social security or Medicare wages and neither you nor your employee will owe social security or Medicare tax on those wages.

Cash wages.

Cash wages include wages you pay by check, money order, etc. Cash wages don't include the value of food, lodging, clothing, transit passes, and other noncash items you give your household employee. However, cash you give your employee in place of these items is included in cash wages. Noncash items may be subject to federal income tax withholding.  

State disability payments treated as wages.

Certain state disability plan payments that your household employee may receive are treated as social security and Medicare wages.  

Wages not counted.

Don't count wages you pay to any of the following individuals as social security or Medicare wages, even if these wages are $2,000 or more during the year.

    Your spouse.

    Your child who is under the age of 21.

    Your parent. Exception: Count these wages if both the following conditions apply.

        Your parent cares for your child who is either of the following.

            Under the age of 18.

            Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in the calendar quarter services were performed.

        Your marital status is one of the following.

            You’re divorced and haven't remarried.

            You’re a widow or widower.

            You’re living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed.

    An employee who is under the age of 18 at any time during the year. Exception: Count these wages if providing household services is the employee's principal occupation. If the employee is a student, providing household services isn't considered to be his or her principal occupation.

Also, if your employee's cash wages reach $127,200 (maximum wages subject to social security tax) in 2017, don't count any wages you pay that employee during the rest of the year as social security wages to figure social security tax. Continue to count the employee's cash wages as Medicare wages to figure Medicare tax.

If you reimburse your employee for qualified parking, transportation in a commuter highway vehicle, transit passes, or commuting by bicycle, you may be able to exclude the cash reimbursement amounts from counting as cash wages subject to social security and Medicare taxes. Qualified parking is parking at or near your home or at or near a location from which your employee commutes to your home. For 2017, you can reimburse your employee up to $255 per month for qualified parking; $255 per month for combined commuter highway vehicle transportation and transit passes; or $20 multiplied by the number of qualified bicycle commuting months during the calendar year.  

Withholding the employee's share.

You should withhold the employee's share of social security and Medicare taxes if you expect to pay your household employee cash wages of $2,000 or more in 2017. However, you may prefer to pay the employee's share yourself.

You can withhold the employee's share of the taxes even if you’re not sure your employee's cash wages will be $2,000 or more in 2017. If you withhold the taxes but then actually pay the employee less than $2,000 in cash wages for the year, you should repay the employee. Don't report withheld taxes that you repaid to the employee on Form W-2.

Withhold 7.65% (6.2% for social security tax and 1.45% for Medicare tax) from each payment of social security and Medicare wages. Generally, you can use Table 3 to figure the proper amount to withhold. You will pay the amount withheld to the IRS with your share of the taxes. Don't withhold any social security tax after your employee's social security wages for the year reach $127,200.

Employee Social Security (6.2%) and Medicare (1.45%1) Tax Withholding Table (See Pub. 15 for income tax withholding tables.) Use this table to figure the amount of social security and Medicare taxes to withhold from each wage payment. For example, on a wage payment of $180, the employee social security tax is $11.16 ($6.20 tax on $100 plus $4.96 on $80 wages). The employee Medicare tax is $2.61 ($1.45 tax on $100 plus $1.16 on $80 wages).

In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. You’re required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold.

If you make an error by withholding too little, you should withhold additional taxes from a later payment. If you withhold too much, you should repay the employee. 

In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. You’re required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold.  

For example, on February 13, 2017, Mary Brown hired Jane A. Oak (who is an unrelated individual over age 18) to care for her child and agreed to pay cash wages of $50 every Friday. Jane worked for the remainder of the year (a total of 46 weeks). Jane didn't give Mary a Form W-4 to request income tax withholding. The following is the information Mary will need to complete Schedule H, Form W-2, and Form W-3.  

Total cash wages paid to Jane    $2,300.00

($50 x 46 weeks)

Jane's share of:              

              Social security tax           $142.60

($2,300 x 6.2% (0.062))

              Medicare tax     $33.35

                             ($2,300 x 1.45% (0.0145))

Mary's share of:             

              Social security tax           $142.60

($2,300 x 6.2% (0.062))

              Medicare tax     $33.35

($2,300 x 1.45% (0.0145))

Amount reported on Form W-2 and Form W-3:

              Box 1: Wages, tips          $2,300.00

              Box 3: Social security wages       $2,300.00

              Box 4: Social security tax withheld           142.60

              Box 5: Medicare wages and tips               $2,300.00

              Box 6: Medicare tax withheld     33.35

Not withholding the employee's share.

If you prefer to pay your employee's social security and Medicare taxes from your own funds, don't withhold them from your employee's wages. The social security and Medicare taxes you pay to cover your employee's share must be included in the employee's wages for income tax purposes. However, they aren't counted as social security and Medicare wages or as federal unemployment (FUTA) wages. Report the social security and Medicare taxes that you paid in boxes 4 and 6 of your employee’s Form W-2; also add the taxes to your employee’s wages reported in box 1 of Form W-2.

For example, in 2017, you hire a household employee (who is an unrelated individual over age 18) to care for your child and agree to pay cash wages of $100 every Friday. You expect to pay your employee $2,000 or more for the year. You decide to pay your employee's share of social security and Medicare taxes from your own funds. You pay your employee $100 every Friday without withholding any social security or Medicare taxes.

For social security and Medicare tax purposes, your employee's wages each payday are $100. For each wage payment, you will pay $15.30 when you pay the taxes. This is $7.65 ($6.20 for social security tax + $1.45 for Medicare tax) to cover your employee's share plus $7.65 ($6.20 for social security tax + $1.45 for Medicare tax) for your share. For income tax purposes, your employee's wages each payday are $107.65 ($100 + the $7.65 you will pay to cover your employee's share of social security and Medicare taxes).

Federal Unemployment (FUTA) Tax 

The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Like most employers, you may owe both the federal unemployment tax (the FUTA tax) and a state unemployment tax. Or, you may owe only the FUTA tax or only the state unemployment tax. To find out whether you will owe state unemployment tax, contact your state's unemployment tax agency. For a list of state unemployment tax agencies, visit the U.S. Department of Labor's website at workforcesecurity.doleta.gov/unemploy/agencies.asp. You should also find out if you need to pay or collect other state employment taxes or carry workers' compensation insurance.

The FUTA tax is 6.0% of your employee's FUTA wages. However, you may be able to take a credit of up to 5.4% against the FUTA tax, resulting in a net tax rate of 0.6%. Your credit for 2017 is limited unless you pay all the required contributions for 2017 to your state unemployment fund by April 17, 2018. The credit you can take for any contributions for 2017 that you pay after April 17, 2018, is limited to 90% of the credit that would have been allowable if the contributions were paid by April 17, 2018. (If you didn't pay all the required contributions for 2016 by April 18, 2017, see Credit for 2016, later.)

Please note that if a due date falls on a Saturday, Sunday, or legal holiday, payments are considered timely if made by the next business day. The term "legal holiday" means any legal holiday in the District of Columbia. Pay the tax as discussed under How Do You Make Tax Payments, later. Also, see What Forms Must You File, later.

It is important to note that the 5.4% credit is reduced for wages paid in a credit reduction state. However, don't withhold the FUTA tax from your employee's wages. You must pay it from your own funds.

FUTA wages.

Figure the FUTA tax on the FUTA wages you pay. If you pay cash wages to all of your household employees totaling $1,000 or more in any calendar quarter of 2016 or 2017, the first $7,000 of cash wages you pay to each household employee in 2017 is FUTA wages. (A calendar quarter is January through March, April through June, July through September, or October through December.) If your employee's cash wages reach $7,000 during the year, don't figure the FUTA tax on any wages you pay that employee during the rest of the year.  

Wages not counted.

Don't count wages you pay to any of the following individuals as FUTA wages. 

    Your spouse.

    Your child who is under the age of 21.

    Your parent.

Credit for 2016.

The credit you can take for any state unemployment fund contributions for 2016 that you pay after April 18, 2017, is limited to 90% of the credit that would have been allowable if the contributions were paid on or before that day.

Use Worksheet A to figure the credit for late contributions if you paid any state contributions after the due date for filing Form 1040.

Worksheet A. Worksheet for Credit for Late Contributions

1.           Enter the amount from Schedule H, line 22 ________________________       

2.           Enter the amount from Schedule H, line 19 ________________________       

3.           Subtract line 2 from line 1. If zero or less, enter -0-         _____________

4.           Enter total contributions paid to the state(s) after the Form 1040 due date     __________         

5.           Enter the smaller of line 3 or line 4         _________________________

6.           Multiply line 5 by 0.90 (90%)      _______________________

7.           Add lines 2 and 6            _______________________

8.           Enter the smaller of the amount on line 1 or line 7 here

and on Schedule H, line 23    ___________________       

Do You Need To Withhold Federal Income Tax?

You’re not required to withhold federal income tax from wages you pay a household employee. You should withhold federal income tax only if your household employee asks you to withhold it and you agree. The employee must give you a completed Form W-4. If you and your employee have agreed to withholding, either of you may end the agreement by letting the other know in writing. If you agree to withhold federal income tax, you’re responsible for paying it to the IRS.  

Use the income tax withholding tables in Pub. 15 to find out how much to withhold. Figure federal income tax withholding on wages before you deduct any amounts for other withheld taxes. Withhold federal income tax from each payment of wages based on the filing status and exemptions shown on your employee's Form W-4. 

Wages.

Figure federal income tax withholding on both cash and noncash wages you pay. Measure wages you pay in any form other than cash by the fair market value of the noncash item. Don't count as wages meals provided to your employee at your home for your convenience or lodging provided to your employee at your home for your convenience and as a condition of employment. 

Up to $255 per month for 2017 for transit passes you give your employee or for any cash reimbursement you make for the amount your employee pays for transit passes used to commute to your home if you qualify for this exclusion. A transit pass includes any pass, token, fare card, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train. 

Up to $255 per month for 2017 for the value of parking you provide your employee or for any cash reimbursement you make for the amount your employee pays and substantiates for parking at or near your home or at or near a location from which your employee commutes to your home.

 Paying tax without withholding.

Any income tax you pay for your employee without withholding it from the employee's wages must be included in the employee's wages for federal income tax purposes. It also must be included in social security and Medicare wages and in federal unemployment (FUTA) wages.

What Do You Need To Know About the Earned Income Credit?

Certain workers can take the earned income credit (EIC) on their federal income tax return. This credit reduces their tax or allows them to receive a payment from the IRS.

Notice about the EIC.

You must give your household employee a notice about the EIC if you agree to withhold federal income tax from the employee's wages (as discussed earlier under Do You Need To Withhold Federal Income Tax?) and the income tax withholding tables show that no tax should be withheld. Even if not required, you’re encouraged to give the employee a notice about the EIC if his or her 2017 wages are less than $48,340 ($53,930 if married filing jointly).

Copy B of the 2017 Form W-2 has a statement about the EIC on the back. If you give your employee that copy by January 31, 2018, you don't have to give the employee any other notice about the EIC.

If you don't give your employee Copy B of the Form W-2, your notice about the EIC can be a substitute Form W-2 with the same EIC information on the back of the employee's copy that is on Copy B of the Form W-2, notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC) or your own written statement with the same wording as in Notice 797.

If a substitute Form W-2 is given on time but doesn't have the required EIC information, you must notify the employee within 1 week of the date the substitute Form W-2 is given. If Form W-2 is required but isn't given on time, you must give the employee Notice 797 or your written statement about the 2017 EIC by January 31, 2018. If Form W-2 isn't required, you must notify the employee by February 7, 2018.

How Do You Make Tax Payments?

When you file your 2017 federal income tax return in 2018, attach Schedule H (Form 1040) to your Form 1040, 1040NR, 1040-SS, or 1041. Use Schedule H to figure your total household employment taxes (social security, Medicare, FUTA, and withheld federal income taxes). Add these household employment taxes to your income tax. Pay the amount due by April 17, 2018. For more information about using Schedule H, see Schedule H under What Forms Must You File, later.

You can avoid owing tax with your return if you pay enough tax during the year to cover your household employment taxes, as well as your income tax. You can pay the additional tax in any of the following ways.

You may be subject to the estimated tax underpayment penalty if you didn't pay enough income and household employment taxes during the year. However, you won't be subject to the penalty if both of the following situations apply to you.  

Asking for more federal income tax withholding.

If you’re employed and want more federal income tax withheld from your wages to cover your household employment taxes, give your employer a new Form W-4. Complete it as before, but show the additional amount you want withheld from each paycheck on line 6.

If you receive a pension or annuity and want more federal income tax withheld to cover household employment taxes, give the payer a new Form W-4P (or a similar form provided by the payer). Complete it as before, but show the additional amount you want withheld from each benefit payment on line 3.

Make sure you will have the right amount withheld. It will help you compare your total expected withholding for 2017 with the combined income tax and employment taxes that you can expect to figure on your 2017 tax return.

Paying estimated tax.

If you want to make estimated tax payments to cover household employment taxes, get Form 1040-ES. You can use its payment vouchers to make your payments by check or money order. You may be able to pay by Electronic Funds Withdrawal (EFW) or credit card. For details, see the form instructions and visit IRS.gov.

You can pay all the employment taxes at once or you can pay them in installments. If you have already made some estimated tax payments for 2017, you should increase your remaining payments to cover the employment taxes. Estimated tax payments for 2017 are due April 18, June 15, and September 15, 2017, and January 16, 2018.

Payment option for business employers.

If you own a business or a farm operated for profit, you can choose either of two ways to pay your 2017 household employment taxes. You can pay them with your federal income tax as previously described, or you can include them with your federal employment tax deposits or other payments for your business or farm employees. For information on depositing employment taxes, see Pub. 15.

If you pay your household employment taxes with your business or farm employment taxes, you must report your household employment taxes with those other employment taxes on Form 941, Employer's QUARTERLY Federal Tax Return; Form 944, Employer's ANNUAL Federal Tax Return; or Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, and on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return.

The deduction that can be taken on Schedules C and F (Form 1040) for wages and employment taxes applies only to wages and taxes paid for business and farm employees. You can't deduct the wages and employment taxes paid for your household employees on your Schedule C or F.

You may have to pay taxes through federal income tax withholding and estimated tax payments. This will help you avoid figuring the estimated tax penalty.

What Forms Must You File?

You must file certain forms to report your household employee's wages and the federal employment taxes for the employee if you pay any of the following wages to the employee.

Employer identification number (EIN).

You must include your EIN on the forms you file for your household employee. An EIN is a nine-digit number issued by the IRS. It isn't the same as a social security number (SSN). You ordinarily will have an EIN if you previously paid taxes for employees, either as a household employer or as a sole proprietor of a business you own. If you already have an EIN, use that number. If you don't have an EIN, you may apply for one online. Go to IRS.gov and enter "EIN" in the search box. You may also apply for an EIN by faxing or mailing Form SS-4 to the IRS.

Form W-2.

File a separate 2017 Form W-2 for each household employee to whom you pay either of the following wages during the year.  

You must complete Form W-2 and give Copies B, C, and 2 to your employee by January 31, 2018. You must also send Copy A of Form W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the SSA by January 31, 2018. We encourage you to file Form W-2 electronically. Electronic filing is available to all employers and is free, fast, and secure. If filing electronically, the SSA will generate Form W-3 data from the electronic submission of Form(s) W-2.

If you're not required to file a Form W-2, we encourage you to provide your household employee with a receipt for services that includes the dates worked, wages paid, and a general description of work completed. This receipt will help the household employee to report his or her wages on Form 1040.

Employee who leaves during the year.

If an employee stops working for you before the end of 2017, you can file Form W-2 and provide copies to your employee immediately after you make your final payment of wages. You don't need to wait until 2018. If the employee asks you for Form W-2, give it to him or her within 30 days after the request or the last wage payment, whichever is later.

Schedule H.

Use Schedule H to report household employment taxes if you pay any of the following wages to the employee.

File Schedule H with your 2017 federal income tax return by April 17, 2018. If you get an extension to file your return, the extension also will apply to your Schedule H.

Filing options when no return is required.

If you’re not required to file a 2017 tax return, you have the following two options.

Employers having the options listed above include certain tax-exempt organizations that don't have to file a tax return, such as churches that pay a household worker to take care of a minister's home.

Business employment tax returns.

Don't use Schedule H if you choose to pay the employment taxes for your household employee with business or farm employment taxes. (See Payment option for business employers, earlier.) Instead, include the social security, Medicare, and withheld federal income taxes for the employee on the Form 941 or Form 944 you file for your business or on the Form 943 you file for your farm. Include the FUTA tax for the employee on your Form 940. If you report the employment taxes for your household employee on Form 941, Form 944, or Form 943, file Form W-2 for that employee with the Forms W-2 and Form W-3 for your business or farm employees.

What Records Must You Keep?

Keep your copies of Schedule H or other employment tax forms you file and related Forms W-2, W-3, and W-4. You must also keep records to support the information you enter on the forms you file. If you must file Form W-2, you will need to keep a record of your employee's name, address, and SSN.

Wage and tax records.

On each payday, you should record the date and amounts of all the following items.

Employee's SSN.

You must keep a record of your employee's name and SSN exactly as they appear on his or her social security card if you pay the employee either of the following.

You must ask for your employee's SSN no later than the first day on which you pay the wages. You may consider asking for it when you hire your employee. You should ask your employee to show you his or her social security card. The employee may show the card if it is available. You may, but aren't required to, photocopy the card if the employee provides it.

An employee who doesn't have an SSN must apply for one on Form SS-5, Application for a Social Security Card. An employee who has lost his or her social security card or whose name isn't correctly shown on the card may apply for a replacement card. 

How long to keep records.

Keep your employment tax records for at least 4 years after the due date of the return on which you report the taxes or the date the taxes were paid, whichever is later.

Can You Claim a Credit for Child and Dependent Care Expenses?

If your household employee cares for your dependent who is under age 13 or for your spouse or dependent who isn't capable of self-care, you may be able to take an income tax credit against some of your expenses. To qualify, you must pay these expenses so you can work or look for work. If you can take the credit, you can include in your qualifying expenses your share of the federal and state employment taxes you pay, as well as the employee's wages.

How Can You Correct Schedule H? 

If you discover that you made an error on a Schedule H (or Anexo H-PR), the forms used to correct the error depend on whether the Schedule H was attached to another form or whether it was filed by itself.

Schedule H attached to another form.

If you discover an error on a Schedule H that you previously filed with Form 1040, Form 1040NR, or Form 1040-SS, file Form 1040X, Amended U.S. Individual Income Tax Return, and attach a corrected Schedule H. If you filed Formulario 1040-PR, file a Form 1040X and attach a corrected Anexo H-PR. If you discover an error on a Schedule H that you previously filed with Form 1041, U.S. Income Tax Return for Estates and Trusts, file an "amended" Form 1041 and attach a corrected Schedule H. You discovered (that is, ascertained) the error when you had enough information to be able to correct the error. Write "CORRECTED" (or "CORREGIDO") and the date you discovered the error in the top margin of your corrected Schedule H (or Anexo H-PR), in bold letters. In addition, explain the reason for your correction and the date the error was discovered in Part III of Form 1040X or in a statement attached to the amended Form 1041.

Schedule H filed by itself.

If you discover an error on a Schedule H (or Anexo H-PR) that you filed as a stand-alone return, file another stand-alone Schedule H with the corrected information. You discovered (that is, ascertained) the error when you had enough information to be able to correct the error. Write "CORRECTED" (or "CORREGIDO") and the date you discovered the error in the top margin of your corrected Schedule H (or Anexo H-PR), in bold letters. In addition, explain the reason for your correction and the date the error was discovered in a statement attached to the corrected Schedule H. If you have an overpayment, also write "ADJUSTED" (or "CORREGIDO") or "REFUND" (or "REEMBOLSO") in the top margin, depending on whether you want to adjust your overpayment or claim a refund.

When to file.

File a corrected Schedule H when you discover an error on a previously filed Schedule H. If you’re correcting an underpayment, file a corrected Schedule H no later than the due date of your next tax return (generally, April 15 of the following calendar year) after you discover the error. If you’re correcting an overpayment, file a corrected Schedule H within the refund period of limitations (generally 3 years from the date your original form was filed or within 2 years from the date you paid the tax, whichever is later).

Underpayment of tax.

You must pay any underpayment of social security and Medicare taxes by the time you file the corrected Schedule H. Generally, by filing on time and paying by the time you file the return, you won't be charged interest (and won't be subject to failure-to-pay or estimated tax penalties) on the balance due. However, underreported FUTA taxes will be subject to interest.

Overpayment of tax.

You may either adjust or claim a refund of an overpayment of social security and Medicare taxes on a previously filed Schedule H. However, if you’re correcting an overpayment and are filing the corrected Schedule H within 90 days of the expiration of the period of limitations, you can only claim a refund of the overpayment.

Adjust the overpayment.

If the corrected Schedule H is filed with a Form 1040X or an amended Form 1041, adjust your return by indicating on line 23 of the Form 1040X or on line 29a of the Form 1041 that you would like the overpayment applied to your estimated taxes on Form 1040, Form 1040NR, Form 1040-PR, Form 1040-SS, or Form 1041 for the year in which you’re filing the corrected Schedule H. If the corrected Schedule H is filed as a stand-alone return, adjust your return by writing "ADJUSTED" (or "CORREGIDO") in the top margin (in bold letters). If you adjust your return, you won't receive interest on your overpayment. If the corrected Schedule H will be filed within 90 days of the expiration of the refund period of limitations, you may not adjust the return and must claim a refund for the overpayment. You may not adjust your return to correct overpayments of FUTA tax.

Claim for refund process.

If the corrected Schedule H is filed with a Form 1040X or an amended Form 1041, claim a refund by indicating that you would like the overpayment refunded to you on line 22 of the Form 1040X or line 29b of the Form 1041. If the corrected Schedule H is filed as a stand-alone return, claim a refund by writing "REFUND" (or "REEMBOLSO") in the top margin (in bold letters). You will receive interest on any overpayment refunded, unless the overpayment is for FUTA tax because you were entitled to increased credits for state contributions.

Required repayment or consent.

If you previously overreported social security and Medicare taxes, you may adjust your overpayment only after you’ve repaid or reimbursed your employees the amount of the overcollection of employee tax. You reimburse your employees by applying the overwithheld amount against taxes to be withheld on future wages. You may claim a refund for the overpayment only after you’ve repaid or reimbursed your employees the amount of the overcollection or you’ve obtained consents from your employees to file the claim for refund for the employee tax. Include a statement that you repaid or reimbursed your employees, or obtained their written consents in the case of a claim for refund, in Part III of Form 1040X or in a statement attached to the amended Form 1041 or the stand-alone corrected Schedule H.

Filing required Forms W-2 or Forms W-2c.

Whether you previously underreported tax or overreported tax, you will generally be required to file Form W-2, or their territorial equivalents (if none was previously filed), or Form W-2c, Corrected Wage and Tax Statement, to reflect the changes reported on your corrected Schedule H.

Additional Medicare Tax.

Generally, you may not correct an error in Additional Medicare Tax withholding for wages paid to employees in a prior year unless it is an administrative error. An administrative error occurs if the amount you entered on Schedule H isn't the amount you actually withheld. For example, if the Additional Medicare Tax actually withheld was incorrectly reported on Schedule H due to a mathematical or transposition error, this would be an administrative error. If a prior year error was a nonadministrative error, you may correct only the wages subject to Additional Medicare Tax withholding.

Any underwithheld Additional Medicare Tax must be recovered from employees on or before the last day of the calendar year in which the underwithholding occurred. Any excess Additional Medicare Tax withholding must be repaid or reimbursed to employees before the end of the calendar year in which it was withheld.

Pay-as-you-go Tax

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go.

Withholding.

If you are an employee, your employer probably withholds income tax from your pay. In addition, tax may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. The amount withheld is paid to the Internal Revenue Service (IRS) in your name.

Estimated tax.

If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. People who are in business for themselves generally will have to pay their tax this way. You may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rents, and royalties. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax. You need to know how to take credit on your return for the tax that was withheld and for your estimated tax payments.

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. Generally, the IRS can figure this penalty for you. This underpayment penalty, and the exceptions to it, are discussed in chapter 4.

Nonresident aliens.

Before completing Form W-4, Employee's Withholding Allowance Certificate, nonresident alien employees should see the Instructions for Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Also see chapter 8 of Pub. 519, U.S. Tax Guide for Aliens, for important information on withholding.

Standard mileage rates.

The 2017 rate for business use of your vehicle is 53.5 cents per mile. The rate for use of your vehicle to get medical care or move is 17 cents per mile. The rate of 14 cents per mile for charitable use is unchanged.

Personal exemption for certain taxpayers.

For 2017, the personal exemption amount remains unchanged at $4,050 for taxpayers with adjusted gross income at or below $313,800 if married filing jointly or qualifying widow(er), $287,650 if head of household, $261,500 if single, or $156,900 if married filing separately. The personal exemption amount for taxpayers with adjusted gross income above these thresholds may be reduced.

Limitation on itemized deductions.

For 2017, itemized deductions for taxpayers with adjusted gross income above $313,800 if married filing jointly or qualifying widow(er), $287,650 if head of household, $261,500 if single, and $156,900 if married filing separately may be reduced.

Alternative minimum tax (AMT) exemption amount increased.

The AMT exemption amount is increased to $54,300 ($84,500 if married filing jointly or qualifying widow(er); $42,250 if married filing separately).

Lifetime learning credit income limits.

In order to claim a lifetime learning credit, your MAGI must be less than $56,000 ($112,000 if married filing jointly).

Retirement savings contribution credit income limits increased.

In order to claim this credit for 2017, your MAGI must be less than $31,000 ($62,000 if married filing jointly; $46,500 if head of household).

Adoption credit or exclusion.

The maximum adoption credit or exclusion for employer-provided adoption benefits has increased to $13,570. In order to claim either the credit or exclusion, your MAGI must be less than $243,540.

Earned income credit (EIC).

You may be able to take the EIC in 2017 if:

Also, the maximum MAGI you can have and still get the credit has increased. You may be able to take the credit if your MAGI is less than the amount in the above list that applies to you. The maximum investment income you can have and get the credit is $3,450 for 2017.

Individual taxpayer identification number (ITIN) renewal.

If you were assigned an ITIN before January 1, 2013, or if you have an ITIN that you haven’t included on a tax return in the last three consecutive years, you may need to renew it.

Social security tax.

Generally, each employer for whom you work during the tax year must withhold social security tax up to the annual limit. The annual limit is $127,200 in 2017.

Health care coverage.

When you file your 2017 tax return in 2018, you will need to either (1) indicate on your return that you and your family had health care coverage throughout 2017, (2) claim an exemption from the health care coverage requirement for some or all of 2017, or (3) make a payment if you do not have coverage or an exemption(s) for all 12 months of 2017. See Form 8965 and its instructions for more information on claiming an exemption or making a payment.

Advance payments of the premium tax credit.

If you buy health insurance through the Health Insurance Marketplace, you may be eligible to have advance payments of the premium tax credit paid on your behalf to the insurance company. Receiving too little or too much in advance will affect your refund or balance due. Promptly report changes in your income or family size to your Marketplace. See Form 8962 and its instructions for more information.

Additional Medicare Tax.

A 0.9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act compensation, and self-employment income over a threshold amount based on your filing status. You may need to include this amount when figuring your estimated tax. You may also request that your employer deduct and withhold an additional amount of income tax withholding from your wages on Form W-4, Employee's Withholding Allowance Certificate.

Net Investment Income Tax.

You may be subject to Net Investment Income Tax (NIIT). NIIT is a 3.8% tax on the lesser of net investment income or the excess of your modified adjusted gross income (MAGI) over the threshold amount. NIIT may need to be included when figuring estimated tax. You may also request that your employer deduct and withhold an additional amount of income tax withholding from your wages on Form W-4. 

Salaries and Wages

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.

If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. 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. 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.

Military retirees.

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.

Household workers.

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.

Farmworkers.

Generally, income tax is withheld from your cash wages for work on a farm unless your employer both:

Differential wage payments.

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.

Determining Amount of Tax Withheld Using Form W-4

The amount of income tax your employer withholds from your regular pay depends on two things.

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. Form W-4 includes four types of information that your employer will use to figure your withholding.

New Job

When you start a new job, you must fill out a 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.

Employee also receiving pension income.

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.

Changing Your Withholding

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 number of allowances.

If the changes reduce the number of allowances you are allowed to claim or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. (Line 3 of Form W-4) and Withholding Allowances (Line 5 of Form W-4) . Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. If you change the number of your withholding allowances, you can request that your employer withhold using the Cumulative Wage Method.  

Personal and Financial Changes Factors

Checking Your Withholding

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 much or too little. 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. See Table 1-1 for examples. You cannot give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax.

When Should You Check Your Withholding?

The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld. You should check your withholding when any of the following situations occur.  

How Do You Increase Your Withholding?

There are two ways to increase your withholding. You can:

Requesting an additional amount withheld.

You can request that an additional amount be withheld from each paycheck by following these steps.

If you have this additional amount withheld from your pay each payday, you should avoid owing a large amount at the end of the year.

What if I have more than one job or my spouse also has a job?

You are more likely to need to increase your withholding if you have more than one job or if you are married filing jointly and your spouse also works. If this is the case, you can increase your withholding for one or more of the jobs.You need to give your employer a new Form W-4 for each job for which you are changing your withholding.

How Do You Decrease Your Withholding?

You may have more tax withheld than your projected tax liability for 2017, you may be able to decrease your withholding. There are two ways to do this. You can:

You can claim only the number of allowances to which you are entitled. You may be able to decrease your withholding by increasing your allowances.

Increasing the number of allowances.

Figure and increase the number of withholding allowances you can claim as follows.

When Will Your New Form W-4 Go Into Effect?

If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4. If the change is for next year, your new Form W-4 will not take effect until next year.

Retirees Returning to the Workforce

When you first began receiving your pension, you told the payer how much tax to withhold, if any, by completing Form W-4P, Withholding Certificate for Pension or Annuity Payments (or similar form). However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. You completed either form based on your projected income at that time. Now that you are returning to the workforce, your new Form W-4 (given to your employer) and your Form W-4 or W-4P (on file with your pension plan) must work together to determine the correct amount of withholding for your new amount of income.

The worksheets that come with Forms W-4 and W-4P are basically the same, so you can use either set of worksheets to figure out how many withholding allowances you are entitled to claim. Start off with the Personal Allowances Worksheet. Then, if you will be itemizing your deductions, claiming adjustments to income, or claiming tax credits when you file your tax return, complete the Deductions and Adjustments Worksheet.

The third worksheet is the most important for this situation. Form W-4 calls it the Two-Earners/Multiple Jobs Worksheet, Form W-4P calls it the Multiple Pensions/More-Than-One-Income Worksheet—both are the same. If you have more than one source of income, in order to have enough withholding to cover the tax on your higher income, you may need to claim fewer withholding allowances or request your employer to withhold an additional amount from each paycheck.

Once you have figured out how many allowances you are entitled to claim, look at the income from both your pension and your new job, and how often you receive payments. It is your decision how to divide up your withholding allowances between these sources of income. For example, you may want to "take home" most of your weekly paycheck to use as spending money and use your monthly pension to "pay the bills." In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4.

There are a couple of ways you can get a better idea of how much tax will be withheld when claiming a certain number of allowances.

And remember, this is not a final decision. If you do not get the correct amount of withholding with the first Forms W-4 and W-4P you submit, you should refigure your allowances (or divide them differently) using the information and worksheets in this publication, or the resources mentioned above.

You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. You may need more tax withheld, or you may need less.

Tax Credits for 2017

When completing Form W4 for your employer, you should also consider which credit will qualify for and get a rough estimate of how much you will be receiving. The following credits are credits you may qualify for and that would make a difference in your tax situation.

There is a lower withholding rate for people who qualify to check the "Married" box of Form W-4. Everyone else must have tax withheld at the higher single rate. If you are single, divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single. You are considered married for the whole year even if your spouse died during the year.

You expect to be able to file your return as a qualifying widow or widower.

You usually can use this filing status if your spouse died within the previous 2 years and you provide more than half the cost of keeping up a home for the entire year that was the main home for you and your child whom you can claim as a dependent. However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower.

Some married people find that they do not have enough tax withheld at the married rate. This can happen, for example, when both spouses work. To avoid this, you can check the "Married, but withhold at higher Single rate" box (even if you qualify for the married rate).

Withholding Allowances

The more allowances you claim on Form W-4, the less income tax your employer will withhold. You will have the most tax withheld if you claim "0" allowances. The number of allowances you can claim depends on the following factors.

If you are married (filing jointly), it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4. Or, if married filing separately, whether or not your spouse also works.

If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments.

Complete all worksheets that apply to your situation. The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year. 

Multiple jobs.

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.

Married individuals. 

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.

Alternative method of figuring withholding allowances.

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. The method you use must be based on withholding schedules, the tax rate schedules, and any other way of making a good estimate of withholding. However, it must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4. You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. You still must give your employer a Form W-4 claiming your withholding allowances.

Employees who are not citizens or residents.

If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U.S. national. It also does not apply if your spouse is a U.S. citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. Special rules apply to residents of South Korea and India.

Personal Allowances Worksheet

Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply.

You can claim one withholding allowance for each exemption you expect to claim on your tax return. You can claim an allowance for your exemption unless another person can claim an exemption for you on his or her tax return. If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption.

Spouse.

You can claim an allowance for your spouse's exemption unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. Do not claim this allowance if you and your spouse expect to file separate returns.

Dependents.

You can claim one allowance for each exemption you will claim for a dependent on your tax return.

Only one job

You can claim an additional withholding allowance if any of the following apply for 2017.

Head of household filing status

Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that:  

Reduction of personal allowances.

For 2017, your deduction for personal exemptions on your tax return is reduced if your adjusted gross income (AGI) is more than the AGI shown next for your filing status.

Personal Allowance Phaseout Threshold

If you expect your AGI to be more than the amount listed, you must figure your reduced number of personal allowances on Form W4.

Child and dependent care credit

Make adjustments to your Form W4, if you expect to claim a credit for at least $2,000 of qualifying child or dependent care expenses on your 2017 return. Generally, qualifying expenses are those you pay for the care of your dependent who is your qualifying child under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work.

An eligible child for the Child Tax Credit is any child (who):

If you are a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test. Also, if any other person can claim the child as an eligible child follow the procedures fo qualifying child of more than one person.

Deductions and Adjustments Worksheet\

Use the Deductions and Adjustments Worksheet of Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2017 tax return and you want to reduce your withholding. Also, complete this worksheet when you have changes to those items to see if you need to change your withholding.

Do not include any amount shown on your last tax return that has been disallowed by the IRS. For example, on June 30, 2016, you bought your first home. On your 2016 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2017 return. You can use $13,200 to figure the number of your withholding allowances for itemized deductions.

Use the amount of each item you reasonably can expect to show on your return. However, do not use more than:

Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2017. You normally claim these deductions on Schedule A of Form 1040. There are more and these are only a few.

 Phaseout of itemized deductions.

For 2017, your total itemized deductions may be phased out (reduced) if your AGI is more than the following thresholds. Itemized Deduction Phaseout Threshold

You can take the following adjustments to income into account when figuring additional withholding allowances for 2017. Only a few are listed here.

Tax credits

Although you can take most tax credits into account when figuring withholding allowances, Form W4 is not large enough to include everything. Therefore, you must account for items on your own. You can take these credits and others into account by adding an extra amount directly on Form W4.

In addition to the child and dependent care credit and the child tax credit, you can generally take into account the following credits.

Two-Earners/Multiple Jobs

Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $50,000 ($20,000 if married).

Getting the Right Amount of Tax Withheld

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.

Part-Year Method

If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. To be eligible for the part-year method, you must meet both of the following requirements.

How to apply for the part-year method.

You must ask your employer in writing to use this method. The request must state all three of the following.

Cumulative Wage Method

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.

Rules Your Employer Must Follow

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.

New Form W-4.

When 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.

No Form W-4.

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.

Repaying withheld tax.

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.

IRS review of your withholding.

Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. Your employer may be required to send a copy of the Form W-4 to the IRS. There is a penalty for supplying false information on Form W-4.

If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS will issue a notice of the maximum number of withholding allowances permitted (commonly referred to as a "lock-in letter") to both you and your employer.

The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. If you believe that you are entitled to claim complete exemption from withholding or claim more withholding allowances than the maximum number specified by the IRS in the lock-in letter, you must submit a new Form W-4 and a written statement to support your claims to the IRS. Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. At the end of this period, if you have not responded or if your response is not adequate, your employer will be required to withhold based on the original lock-in letter.

After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum number of withholding allowances specified in that letter.

If you later believe that you are entitled to claim exemption from withholding or more allowances than the IRS determined, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer otherwise.

At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. Your employer must then withhold tax based on this new Form W-4.

Exemption From Withholding

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 2017 only if both of the following situations apply.

Students.

If you are a student, you are not automatically exempt. If you work only part time or during the summer, you may qualify for exemption from withholding.

For example, you are a high school student and expect to earn $2,500 from a summer job. You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. You worked last summer and had $375 federal income tax withheld from your pay. The entire $375 was refunded when you filed your 2016 return. You can claim exemption from withholding. If on the other hand, you also have a savings account and expect to have $400 interest income during the year, you cannot claim exemption from withholding because your unearned income will be more than $350 and your total income will be more than $1,050. Ultimately, you may still have to file a tax return, even if you are exempt from withholding.

Age 65 or older or blind. If you are 65 or older or blind, you may be able to claim exemption from withholding. Make sure, however, if you can still claim exemption if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2017 return.  

Itemizing deductions or claiming exemptions or credits.

You must figure out your 2017 expected tax liability if not zero. You can only claim exemtion from withholding if your total expected tax liability is zero. Calculate your expected liability to make sure if you can claim exemption if you had no tax liability for 2016, and you will:

Look, 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 2017 but you expect to owe income tax for 2018, you must file a new Form W-4 by December 1, 2017.

Your exemption is good for only one year. After that, you must give your employer a new Form W-4 by February 15 each year to continue your exemption.

Supplemental Wages

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 regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate.

Expense allowances.

Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses.

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. 

Accountable plan.

To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules.

An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.

The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.

Nonaccountable plan.

Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan.

Penalties

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 Form W-4 penalty.

Tips

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.

Reporting tips to your employer.

If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. The report is due by the 10th day of the following month.

If you have more than one job, make a separate report to each employer. Report only the tips you received while working for that employer, and only if they total $20 or more for the month.

How employer figures amount to withhold.

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.

Not enough pay to cover taxes.

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.

If you do not give your employer money to cover the shortage, your employer first withholds as much Medicare tax and social security or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. If not enough tax is withheld, you may have to pay estimated tax. When you file your return, you also may have to pay any Medicare and social security tax or railroad retirement tax your employer could not withhold.

Tips not reported to your employer.

On your tax return, you must report all the tips you receive during the year, even tips you do not report to your employer (this includes the value of any noncash tips you received, such as tickets, passes, or other items of value). Make sure you are having enough tax withheld, or are paying enough estimated tax , to cover all your tip income.

Allocated tips.

If you work in a large food or beverage establishment, your employer may have to report an allocated amount of tips on your Form W-2.

Your employer should not withhold income tax, Medicare tax, and social security or railroad retirement tax on the allocated amount. Withholding is based only on your pay plus your reported tips. Your employer should refund to you any incorrectly withheld tax.

Taxable Fringe Benefits

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.

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.

When benefits are considered paid.

Your employer can choose to treat a fringe benefit as paid by the pay period, by the quarter, or on some other basis as long as the benefit is considered paid at least once a year. Your employer can treat the benefit as being paid on one or more dates during the year, even if you get the entire benefit at one time.

Special rule.

Your employer can choose to treat a benefit provided during November or December as paid in the next year. Your employer must notify you if this rule is used. For example, your employer considers the value of benefits paid from November 1, 2015, through October 31, 2016, as paid to you in 2016. To determine the total value of benefits paid to you in 2017, your employer will add the value of any benefits paid in November and December of 2016 to the value of any benefits paid in January through October of 2017.

Exceptions.

Your employer cannot choose when to withhold tax on the transfer of either real property or personal property of a kind normally held for investment (such as stock). Your employer must withhold tax on these benefits at the time of the transfer.

How withholding is figured.

Your employer can either add the value of a fringe benefit to your regular pay and figure income tax withholding on the total or withhold a flat 20% of the benefit's value.

If the benefit's actual value cannot be determined when it is paid or treated as paid, your employer can use a reasonable estimate. Your employer must determine the actual value of the benefit by January 31 of the next year. If the actual value is more than the estimate, your employer must pay the IRS any additional withholding tax required. Your employer has until April 1 of that next year to recover from you the additional income tax paid to the IRS for you.

How your employer reports your benefits.

Your employer must report on Form W-2 the total of the taxable fringe benefits paid or treated as paid to you during the year and the tax withheld for the benefits. These amounts can be shown either on the Form W-2 for your regular pay or on a separate Form W-2. If your employer provided you with a car, truck, or other motor vehicle and chose to treat all of your use of it as personal, its value must be either separately shown on Form W-2 or reported to you on a separate statement.

Sick Pay

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 .

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.

Union agreements.

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.

Form W-4S.

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.

Form W-4S remains in effect until you change or cancel it, or stop receiving payments. You can change your withholding by giving a new Form W-4S or a written notice to the payer of your sick pay.

Estimated tax.

If you do not request withholding on Form W-4S, or if you do not have enough tax withheld, you may have to pay estimated tax. 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.

Pensions and Annuities

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. ERDs are discussed under Eligible Rollover Distributions .

Nontaxable part.

The part of your pension or annuity that is a return of your investment in your retirement plan (the amount you paid into the plan or its cost to you) is not taxable. Income tax will not be withheld from the part of your pension or annuity that is not taxable. The tax withheld will be figured on, and cannot be more than, the taxable part.

Periodic Payments

Withholding from periodic payments of a pension or annuity is figured in the same way as withholding from salaries and wages. To tell the payer of your pension or annuity how much you want withheld, fill out Form W-4P or a similar form provided by the payer. Use Form W-4, not Form W-4P, if you receive any of the following.

Withholding rules.

The withholding rules for pensions and annuities differ from those for salaries and wages in the following ways.

Effective date of withholding certificate.

If you give your withholding certificate (Form W-4P or a similar form) to the payer on or before the date your payments start, it will be put into effect by the first payment made more than 30 days after you submit the certificate.

If you give the payer your certificate after your payments start, it will be put into effect with the first payment which is at least 30 days after you submit it. However, the payer can elect to put it into effect earlier.

Nonperiodic Payments

Tax will be withheld at a flat 10% rate on any nonperiodic payments you receive, unless you tell the payer not to withhold.

Use Form W-4P, line 3, to specify that an additional dollar amount be withheld. You also can use Form W-4P, line 1, to choose not to have tax withheld. You also may have the option to revoke a choice not to have tax withheld.

You may need to use Form W-4P to ask for additional withholding. As you already well aware of, if you do not have enough tax withheld, you may need to pay estimated tax.

Eligible Rollover Distributions

A distribution you receive that is eligible to be rolled over tax free into a qualified retirement or annuity plan is called an eligible rollover distribution (ERD). This is the taxable part of any distribution from a qualified pension plan or tax-sheltered annuity that is not any of the following.

The payer of a distribution must withhold at a flat 20% rate on any part of an ERD that is distributed rather than rolled over directly to another qualified plan. Withholding on these distributions is mandatory. However, no withholding is required on any part rolled over directly to another plan.

Choosing Not To Have Income Tax Withheld

For payments other than ERDs, you can choose not to have income tax withheld. The payer will tell you how to make this choice. If you use Form W-4P, check the box on line 1 to choose not to have withholding. This choice will remain in effect until you decide you want withholding and inform the payer.

The payer must withhold if either of the following applies:

If you do not have any income tax withheld from your pension or annuity, or if you do not have enough withheld, you may have to pay estimated tax. 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.

Payments delivered outside the United States.

You generally must have tax withheld from pension or annuity benefits delivered outside the United States. However, if you are a U.S. citizen or resident alien, you can choose not to have tax withheld if you give the payer of the benefits a home address in the United States or in a U.S. possession. The payer must withhold tax if you provide a U.S. address for a nominee, trustee, or agent to whom the benefits are to be delivered, but do not provide your own home address in the United States or in a U.S. possession.

Notice required of payer.

The payer of your pension or annuity must send you a notice telling you about your right to choose not to have tax withheld. Generally, the payer will not send a notice to you if it is reasonable to believe that the entire amount you will be paid is not taxable.

Revoking a choice not to have tax withheld.

The payer of your pension or annuity will tell you how to revoke your choice not to have income tax withheld from periodic or nonperiodic payments. If you use Form W-4P to revoke the choice, enter "Revoked" by the checkbox on line 1 of the form. This will instruct the payer to withhold as if you were married and claiming three allowances. However, you can tell the payer exactly how much to withhold by completing line 2 of the form for periodic payments or line 3 for nonperiodic payments.

Gambling Winnings

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.

Exception.

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 . If you receive gambling winnings not subject to withholding, you may need to pay estimated tax. 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.

Form W-2G.

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 your 2017 Form 1040, along with all other federal income tax withheld, as shown on Forms W-2 and 1099.

Information to give payer.

If the payer asks, you must give the payer all the following information.

     Whether someone else is entitled to any part of the winnings subject to withholding. If so, you must complete Form 5754, Statement by Person(s) Receiving Gambling Winnings, and return it to the payer. The payer will use it to prepare a Form W-2G for each of the winners.

Identical wagers.

You may have to give the payer a statement of the amount of your winnings, if any, from identical wagers. If this statement is required, the payer will ask you for it. You provide this statement by signing Form W-2G or, if required, Form 5754.

Identical wagers include two bets placed in a pari-mutuel pool on one horse to win a particular race. However, the bets are not identical if one bet is "to win" and one bet is "to place." In addition, they are not identical if the bets were placed in different pari-mutuel pools. For example, a bet in a pool conducted by the racetrack and a bet in a separate pool conducted by an offtrack betting establishment in which the bets are not pooled with those placed at the track are not identical wagers.

Backup withholding on gambling winnings.

If you have any kind of gambling winnings and do not give the payer your social security number, the payer may have to withhold income tax at a flat 28% rate. This rule also applies to winnings of at least $1,200 from bingo or slot machines or $1,500 from keno, and to certain other gambling winnings of at least $600.

Unemployment Compensation

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. Likewise, 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.

Form 1099-G.

If you receive $10 or more in unemployment compensation, you will receive a Form 1099-G, Certain Government Payments. Box 1 will show the amount of unemployment compensation you got for the year. Box 4 will show the amount of federal income tax withheld, if any.

Federal Payments

You can choose to have income tax withheld from certain federal payments you receive. These payments are:

        * 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.

To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer.

Payment to Shareholders of Alaska Native Corporations.

If you are a shareholder of an Alaska Native Corporation (ANC) you can request to have income tax withheld from dividends and other distributions you receive from the ANC. To make this request, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. A request for withholding is not effective until the ANC indicates in writing that it accepts the request or begins withholding. Contact the payer if it is not clear that the payer has accepted your Form W-4V.

If you do not choose to have income tax withheld, or the ANC does not accept your request, you may have to pay estimated tax.

Backup Withholding

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).

These payments generally are not subject to withholding. However, "backup" withholding is required in certain situations.

     * Interest payments,

     * Dividends,

     * Patronage dividends, but only if at least half the payment is in money,

     * Rents, profits, or other gains,

     * Commissions, fees, or other payments for work you do as an independent contractor,

     * Payments by brokers,

     * Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC), and

     * Royalty payments (Form 1099-MISC).

Backup withholding also may apply to gambling winnings.

Payments not subject to backup withholding.

Backup withholding does not apply to payments reported on Form 1099-MISC (other than payments by fishing boat operators and royalty payments) unless at least one of the following three situations applies.

 Gerally you are required to file Form 1099 and and pay backup withholding for a payment of less than $10.

Withholding rules.

When you open a new account, make an investment, or begin to receive payments reported on Form 1099, the bank or other business will give you Form W-9, Request for Taxpayer Identification Number and Certification, or a similar form. You must enter your TIN on the form and, if your account or investment will earn interest or dividends, you also must certify (under penalties of perjury) that your TIN is correct and that you are not subject to backup withholding.

The payer must withhold at a flat 28% rate in the following situations.

Taxpayer identification number.

Your TIN is one of the following three numbers.

An ITIN is for federal tax use only. It does not entitle you to social security benefits or change your employment or immigration status under U.S. law. If you were assigned an ITIN before January 1, 2013, or if you have an ITIN that you haven’t included on a tax return in the last three consecutive years, you may need to renew it.

How to prevent or stop backup withholding.

If you have been notified by a payer that the TIN you gave is incorrect, you usually can prevent backup withholding from starting or stop backup withholding once it has begun by giving the payer your correct name and TIN. You must certify that the TIN you give is correct.

However, the payer will provide additional instructions if the TIN you gave needs to be validated by the Social Security Administration or by the IRS. This may happen if both the following conditions exist.

Underreported interest or dividends.

If you have been notified that you underreported interest or dividends, you must request and receive a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. Your request must show that at least one of the following situations applies.

If the IRS determines that backup withholding should stop, it will provide you with certification and will notify the payers who were sent notices earlier.

Penalties.

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.

Estimated Tax for 2017 

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes 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 salary, pension, or other income is not enough.

Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. 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. If you do not pay enough by the due date of each payment period (see When To Pay Estimated Tax ), you may be charged a penalty even if you are due a refund when you file your tax return.

Who Does Not Have To Pay Estimated Tax

If you receive salaries and wages, you may be able to avoid paying estimated tax by asking your employer to take more tax out of your earnings. To do this, file a new Form W-4 with your employer. See chapter 1.

Estimated tax not required.

You do not have to pay estimated tax for 2017 if you meet all three of the following conditions.

    You had no tax liability for 2016.

    You were a U.S. citizen or resident alien for the whole year.

    Your 2016 tax year covered a 12-month period.

You had no tax liability for 2016 if your total tax (defined later under Total tax for 2016—line 14b ) was zero or you did not have to file an income tax return.

Figure 2-A: Do You Have To Pay Estimated Tax?

Please click here for the text description of the image.

Who Must Pay Estimated Tax

If you owed additional tax for 2016, you may have to pay estimated tax for 2017.

You can use the following general rule as a guide during the year to see if you will have enough withholding, or should increase your withholding or make estimated tax payments.

General Rule

In most cases, you must pay estimated tax for 2017 if both of the following apply.

    You expect to owe at least $1,000 in tax for 2017, after subtracting your withholding and refundable credits.

    You expect your withholding and refundable credits to be less than the smaller of:

        90% of the tax to be shown on your 2017 tax return, or

        100% of the tax shown on your 2016 tax return. Your 2016 tax return must cover all 12 months.

Note. The percentages in (2a) or (2b) just listed may be different if you are a farmer, fisherman, or higher income taxpayer. See Special Rules .

If the result from using the general rule above suggests that you will not have enough withholding, complete the 2017 Estimated Tax Worksheet for a more accurate calculation.

Figure 2-A takes you through the general rule. You may find this helpful in determining if you must pay estimated tax.

If all your income will be subject to income tax withholding, you probably do not need to pay estimated tax.

Example 1.

Jane Smart uses Figure 2-A and the following information to figure whether she should pay estimated tax for 2017. She files as head of household claiming her dependent son, takes the standard deduction, and expects no refundable credits for 2017.

Expected adjusted gross income (AGI) for 2017 $74,550

AGI for 2016      $57,150

Total tax on 2016 return (Form 1040,

line 63)               $ 8,591

Total 2017 estimated tax (line 13c of the 2016 Estimated Tax Worksheet)               $11,015

Tax expected to be withheld in

2017      $10,000

Jane's answer to Figure 2-A, box 1, is YES; she expects to owe at least $1,000 for 2017 after subtracting her withholding from her expected total tax ($11,015 − $10,000 = $1,015). Her answer to box 2a is YES; she expects her income tax withholding ($10,000) to be at least 90% of the tax to be shown on her 2017 return ($11,015 × 90% (0.90) = $9,913.50). Jane does not need to pay estimated tax.

Example 2.

The facts are the same as in Example 1, except that Jane expects only $8,500 tax to be withheld in 2017. Because that is less than $9,913.50, her answer to box 2a is NO.

Jane's answer to box 2b is also NO; she does not expect her income tax withholding ($8,500) to be at least 100% of the total tax shown on her 2016 return ($8,591). Jane must increase her withholding or pay estimated tax for 2016.

Example 3.

The facts are the same as in Example 2, except that the total tax shown on Jane's 2016 return was $8,400. Because she expects to have more than $8,400 withheld in 2017 ($8,500), her answer to box 2b is YES. Jane does not need to pay estimated tax for 2017.

Married Taxpayers

If you qualify to make joint estimated tax payments, apply the rules discussed here to your joint estimated income.

You and your spouse can make joint estimated tax payments even if you are not living together.

However, you and your spouse cannot make joint estimated tax payments if:

    You are legally separated under a decree of divorce or separate maintenance,

    You and your spouse have different tax years, or

    Either spouse is a nonresident alien (unless that spouse elected to be treated as a resident alien for tax purposes). See Choosing Resident Alien Status in Pub. 519.

Note.

Individuals of the same sex and opposite sex who are in registered domestic partnerships, civil unions, or other similar formal relationships that are not marriages under state law cannot make joint estimated tax payments. These individuals can take credit only for the estimated tax payments that he or she made.

If you and your spouse cannot make joint estimated tax payments, apply these rules to your separate estimated income.

Making joint or separate estimated tax payments will not affect your choice of filing a joint tax return or separate returns for 2017.

2016 separate returns and 2017 joint return.

If you plan to file a joint return with your spouse for 2017, but you filed separate returns for 2016, your 2016 tax is the total of the tax shown on your separate returns. You filed a separate return if you filed as single, head of household, or married filing separately.

2016 joint return and 2017 separate returns.

If you plan to file a separate return for 2017, but you filed a joint return for 2016, your 2016 tax is your share of the tax on the joint return. You file a separate return if you file as single, head of household, or married filing separately.

To figure your share of the tax on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2016 using the same filing status for 2017. Then multiply the tax on the joint return by the following fraction.

              The tax you would have paid had you filed a separate return      

The total tax you and your spouse would have paid had you filed separate returns

Example.

Joe and Heather filed a joint return for 2016 showing taxable income of $48,500 and a tax of $6,351. Of the $48,500 taxable income, $40,100 was Joe's and the rest was Heather's. For 2017, they plan to file married filing separately. Joe figures his share of the tax on the 2016 joint return as follows:

Tax on $40,100 based on separate return           $5,803

Tax on $8,400 based on separate return              843

Total     $6,646

Joe's percentage of total ($5,803 ÷ $6,646)          87.3%

Joe's share of tax on joint return

($6,351 × 87.3% (0.873))              $5,544

Special Rules

There are special rules for farmers, fishermen, and certain higher income taxpayers.

Farmers and Fishermen

If at least two-thirds of your gross income for 2016 or 2017 is from farming or fishing, substitute 662/3% for 90% in (2a) under General Rule .

Gross income.

Your gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. To determine whether two-thirds of your gross income for 2016 was from farming or fishing, use as your gross income the total of the income (not loss) amounts.

Joint returns.

On a joint return, you must add your spouse's gross income to your gross income to determine if at least two-thirds of your total gross income is from farming or fishing.

Gross income from farming.

This is income from cultivating the soil or raising agricultural commodities. It includes the following amounts.

    Income from operating a stock, dairy, poultry, bee, fruit, or truck farm.

    Income from a plantation, ranch, nursery, range, orchard, or oyster bed.

    Crop shares for the use of your land.

    Gains from sales of draft, breeding, dairy, or sporting livestock.

For 2016, gross income from farming is the total of the following amounts.

    Schedule F (Form 1040), Profit or Loss From Farming, line 9.

    Form 4835, Farm Rental Income and Expenses, line 7.

    Your share of the gross farming income from a partnership, S corporation, estate or trust, from: Schedule K-1 (Form 1065), Schedule K-1 (Form 1120S), or Schedule K-1 (Form 1041).

    Your gains from sales of draft, breeding, dairy, or sporting livestock shown on Form 4797, Sales of Business Property.

Wages you receive as a farm employee and wages you receive from a farm corporation are not gross income from farming.

Gross income from fishing.

This is income from catching, taking, harvesting, cultivating, or farming any kind of fish, shellfish (for example, clams and mussels), crustaceans (for example, lobsters, crabs, and shrimp), sponges, seaweeds, or other aquatic forms of animal and vegetable life.

Gross income from fishing includes the following amounts.

    Schedule C (Form 1040), Profit or Loss From Business, line 7.

    Income for services as an officer or crew member of a vessel while the vessel is engaged in fishing.

    Your share of the gross fishing income from a partnership, S corporation, estate or trust, from: Schedule K-1 (Form 1065), Schedule K-1 (Form 1120S), or Schedule K-1 (Form 1041).

    Certain taxable interest and punitive damage awards received in connection with the Exxon Valdez litigation.

    Income for services normally performed in connection with fishing.

Services normally performed in connection with fishing include:

    Shore service as an officer or crew member of a vessel engaged in fishing, and

    Services that are necessary for the immediate preservation of the catch, such as cleaning, icing, and packing the catch.

Higher Income Taxpayers

If your AGI for 2016 was more than $150,000 ($75,000 if your filing status for 2017 is married filing a separate return), substitute 110% for 100% in (2b) under General Rule .

For 2016, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4.

Note.

This rule does not apply to farmers and fishermen.

Aliens

Resident and nonresident aliens also may have to pay estimated tax. Resident aliens should follow the rules in this publication, unless noted otherwise. Nonresident aliens should get Form 1040-ES (NR), U.S. Estimated Tax for Nonresident Alien Individuals.

You are an alien if you are not a citizen or national of the United States. You are a resident alien if you either have a green card or meet the substantial presence test.

For more information about withholding, the substantial presence test, and Form 1040-ES (NR), see Pub. 519.

Estates and Trusts

Estates and trusts also must pay estimated tax. However, estates (and certain grantor trusts that receive the residue of the decedent's estate under the decedent's will) are exempt from paying estimated tax for the first 2 years after the decedent's death.

Estates and trusts must use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.

How To Figure Estimated Tax

To figure your estimated tax, you must figure your expected AGI, taxable income, taxes, deductions, and credits for the year.

When figuring your 2017 estimated tax, it may be helpful to use your income, deductions, and credits for 2016 as a starting point. Use your 2016 federal tax return as a guide. You can use Form 1040-ES to figure your estimated tax. Nonresident aliens use Form 1040-ES (NR) to figure estimated tax.

You must make adjustments both for changes in your own situation and for recent changes in the tax law. Some of these changes are discussed under What's New for 2017 . For information about these and other changes in the law, visit the IRS website at IRS.gov.

The instructions for Form 1040-ES include a worksheet to help you figure your estimated tax. Keep the worksheet for your records.

2017 Estimated Tax Worksheet

Use Worksheet 2-1 to help guide you through the information about completing the 2017 Estimated Tax Worksheet. You can also find a copy of the worksheet in the instructions for Form 1040-ES.

Expected AGI—Line 1

Your expected AGI for 2017 (line 1) is your expected total income minus your expected adjustments to income.

Total income.

Include in your total income all the income you expect to receive during the year, even income that is subject to withholding. However, do not include income that is tax exempt.

Total income includes all income and loss for 2017 that, if you had received it in 2016, would have been included on your 2016 tax return in the total on line 22 of Form 1040, line 15 of Form 1040A, or line 4 of Form 1040EZ.

Social security and railroad retirement benefits. If you expect to receive social security or tier 1 railroad retirement benefits during 2017, use Worksheet 2-2 to figure the amount of expected taxable benefits you should include on line 1.

Adjustments to income.

Be sure to subtract from your expected total income all of the adjustments you expect to take on your 2017 tax return.

Self-employed. If you expect to have income from self-employment, use Worksheet 2-3 to figure your expected self-employment tax and your allowable deduction for self-employment tax. Include the amount from Worksheet 2-3 in your expected adjustments to income. If you file a joint return and both you and your spouse have net earnings from self-employment, each of you must complete a separate worksheet.

Expected Taxable Income— Lines 2–5

Reduce your expected AGI for 2017 (line 1) by either your expected itemized deductions or your standard deduction and by your exemptions (lines 2 through 5).

Itemized deductions—line 2.

If you expect to claim itemized deductions on your 2017 tax return, enter the estimated amount on line 2.

Itemized deductions are the deductions that can be claimed on Schedule A (Form 1040).

For 2017, your total itemized deductions may be reduced if your AGI is more than the amount shown next for your filing status.

Single    $261,500

Married filing jointly or qualifying widow(er)      $313,800

Married filing separately             $156,900

Head of household        $287,650

If you expect your AGI to be more than this amount, use Worksheet 2-5 to figure the amount to enter on line 2.

Standard deduction—line 2.

If you expect to claim the standard deduction on your 2017 tax return, enter the amount on line 2. Use Worksheet 2-4 to figure your standard deduction.

No standard deduction.

The standard deduction for some individuals is zero. Your standard deduction will be zero if you:

    File a separate return and your spouse itemizes deductions,

    Are a dual-status alien, or

    File a return for a period of less than 12 months because you change your accounting period.

Exemptions—line 4.

After you have subtracted either your expected itemized deductions or your standard deduction from your expected AGI, reduce the amount remaining by $4,050 for each exemption you expect to take on your 2017 tax return. If another person (such as your parent) can claim an exemption for you on his or her tax return, you cannot claim your own personal exemption. This is true even if the other person will not claim your exemption or the exemption will be reduced or eliminated under the phaseout rule.

For 2017, your deduction for personal exemption is reduced if your AGI is more than the amount shown next for your filing status.

Single    $261,500

Married filing jointly or qualifying widow(er)      $313,800

Married filing separately             $156,900

Head of household        $287,650

If you expect your AGI to be more than this amount, use Worksheet 2-6 to figure the amount to enter on line 4.

Expected Taxes and Credits— Lines 6–13c

After you have figured your expected taxable income (line 5), follow the steps next to figure your expected taxes, credits, and total tax for 2017. Most people will have entries for only a few of these steps. However, you should check every step to be sure you do not overlook anything.

Step 1.

Figure your expected income tax (line 6). Generally, you will use the 2017 Tax Rate Schedules to figure your expected income tax.

However, see below for situations where you must use a different method to compute your estimated tax.

Tax on child's investment income.

You must use a special method to figure tax on the income of the following children who have more than $2,100 of investment income.

    Children under age 18 at the end of 2017.

    The following children if their earned income is not more than half their support.

        Children age 18 at the end of 2017.

        Children who are full-time students at least age 19 but under age 24 at the end of 2017.

See Pub. 929, Tax Rules for Children and Dependents. Although the ages and dollar amounts in the publication may be different in the 2017 revision, this reference will give you basic information for figuring the tax.

Tax on net capital gain.

The regular income tax rates for individuals do not apply to a net capital gain. Instead, your net capital gain is taxed at a lower maximum rate.

The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.

Tax on capital gain and qualified dividends. If the amount on line 1 includes a net capital gain or qualified dividends, use Worksheet 2-7 to figure your tax.

Note.

For 2017, your capital gains and dividends rate will depend on your income.

Tax if excluding foreign earned income or excluding or deducting foreign housing. If you expect to claim the foreign earned income exclusion or the housing exclusion or deduction on Form 2555 or Form 2555-EZ, use Worksheet 2-8 to figure your estimated tax.

Step 2.

Total your expected taxes (line 8). Include on line 8 the sum of the following.

    Your tax on line 6.

    Your expected alternative minimum tax (AMT) from Form 6251, or included on Form 1040A.

    Your expected additional taxes from Form 8814, Parents' Election To Report Child's Interest and Dividends, and Form 4972, Tax on Lump-Sum Distributions.

    Any recapture of education credits.

Step 3.

Subtract your expected credits (line 9). If you are using your 2016 return as a guide and filed Form 1040, your total credits for 2016 were shown on line 55. If you filed Form 1040A, your total credits for 2016 were on line 36.

If your credits on line 9 are more than your taxes on line 8, enter "-0-" on line 10 and go to Step 4.

Step 4.

Add your expected self-employment tax (line 11). You already should have figured your self-employment tax (see Self-employed under Expected AGI—Line 1).

Step 5.

Add your expected other taxes (line 12).

Other taxes include the following. The total of these taxes are entered on line 12.

    Additional tax on early distributions from:

        An IRA or other qualified retirement plan,

        A tax-sheltered annuity, or

        A modified endowment contract entered into after June 20, 1988.

    Household employment taxes if:

        You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income, or

        You would be required to make estimated tax payments even if you did not include household employment taxes when figuring your estimated tax.

    Amounts written on Form 1040 on the line for "other taxes" (line 62 on the 2016 Form 1040). But, do not include recapture of a federal mortgage subsidy; tax on excess golden parachute payments; look-back interest due under section 167(g) or 460(b) of the Internal Revenue Code; excise tax on insider stock compensation from an expatriated corporation; or uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance.

    Repayment of the first-time homebuyer credit. See Form 5405.

    Additional Medicare Tax. A 0.9% Additional Medicare Tax applies to your combined Medicare wages and self-employment income and/or your RRTA compensation that exceeds the amount listed in the following chart, based on your filing status.

    Filing Status   Threshold Amount

    Married filing jointly $250,000

    Married filing separately         $125,000

    Single              $200,000

    Head of household    $200,000

    Qualifying Widow(er)               $250,000

    Medicare wages and self-employment income are combined to determine if your income exceeds the threshold. A self-employment loss should not be considered for purposes of this tax. RRTA compensation should be separately compared to the threshold. Your employer is responsible for withholding the 0.9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in 2017. You should consider this withholding, if applicable, in determining whether you need to make an estimated payment.

    Net Investment Income Tax (NIIT). The NIIT is 3.8% of the lesser of your net investment income or the excess of your modified adjusted gross income over the amount listed in the following chart, based on your filing status.

    Filing Status   Threshold Amount

    Married filing jointly $250,000

    Married filing separately         $125,000

    Single              $200,000

    Head of household    $200,000

    Qualifying Widow(er)               $250,000

Step 6.

Subtract your refundable credits (line 13b). These include the earned income credit, additional child tax credit, fuel tax credit, net premium tax credit, refundable American opportunity credit and refundable amount from Form 8885.

To figure your expected fuel tax credit, do not include fuel tax for the first three quarters of the year that you expect to have refunded to you.

The result of steps 1 through 6 is your total estimated tax for 2017 (line 13c).

Required Annual Payment— Line 14c

On lines 14a through 14c, figure the total amount you must pay for 2017, through withholding and estimated tax payments, to avoid paying a penalty.

General rule.

The total amount you must pay is the smaller of:

    90% of your total expected tax for 2017, or

    100% of the total tax shown on your 2016 return. Your 2016 tax return must cover all 12 months.

Special rules.

There are special rules for higher income taxpayers and for farmers and fishermen.

Higher income taxpayers.

If your AGI for 2016 was more than $150,000 ($75,000 if your filing status for 2017 is married filing separately), substitute 110% for 100% in (2) above. This rule does not apply to farmers and fishermen.

For 2016, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4.

Example.

Jeremy Martin's total tax on his 2016 return was $42,581, and his expected tax for 2017 is $71,253. His 2016 AGI was $180,000. Because Jeremy had more than $150,000 of AGI in 2016, he figures his required annual payment as follows. He determines that 90% of his expected tax for 2017 is $64,128 (0.90 × $71,253). Next, he determines that 110% of the tax shown on his 2016 return is $46,839 (1.10 x $42,581). Finally, he determines that his required annual payment is $46,839, the smaller of the two.

Farmers and fishermen.

If at least two-thirds of your gross income for 2016 or 2017 is from farming or fishing, your required annual payment is the smaller of:

    662/3% (0.6667) of your total tax for 2017, or

    100% of the total tax shown on your 2016 return. (Your 2016 tax return must cover all 12 months.)

For definitions of "gross income from farming" and "gross income from fishing," see Farmers and Fishermen , under Special Rules.

Total tax for 2016—line 14b.

Your 2016 total tax, if you filed Form 1040, is the amount on line 63 reduced by the following.

    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 58).

    The following amounts from Form 5329 included on line 59.

        Any tax on excess contributions to an IRA, Archer MSA, Coverdell education savings account, health savings account, and ABLE account.

        Any tax on excess accumulations in qualified retirement plans.

    The following write-ins on line 62.

        Excise tax on excess golden parachute payments (identified as "EPP").

        Excise tax on insider stock compensation from an expatriated corporation (identified as "ISC").

        Look-back interest due under section 167(g) (identified as "From Form 8866").

        Look-back interest due under section 460(b) (identified as "From Form 8697").

        Recapture of federal mortgage subsidy (identified as "FMSR").

        Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance (identified as "UT").

    Any shared responsibility payment on line 61.

    Any refundable credit amounts on lines 66a, 67, 68, 69, and 72 and credit from Form 8885 included on line 73.

If you filed Form 1040A, your 2016 total tax is the amount on line 39 reduced by the amount on line 38, and any refundable credits on lines 42a, 43, 44, and 45.

If you filed Form 1040EZ, your 2016 total tax is the amount on line 12 reduced by the amount on line 8a and 11.

Total Estimated Tax Payments Needed—Line 16a

Use lines 15 and 16a to figure the total estimated tax you may be required to pay for 2017. Subtract your expected withholding from your required annual payment (line 14c). You usually must pay this difference in four equal installments. See When To Pay Estimated Tax and How To Figure Each Payment .

You do not have to pay estimated tax if:

    Line 14c minus line 15 is zero or less, or

    Line 13c minus line 15 is less than $1,000.

Withholding—line 15.

Your expected withholding for 2017 (line 15) includes the income tax you expect to be withheld from all sources (wages, pensions and annuities, etc.). It includes excess social security, and tier 1 railroad retirement tax you expect to be withheld from your wages and compensation. For this purpose, you will have excess social security or tier 1 railroad retirement tax withholding for 2017 only if your wages and compensation from two or more employers are more than $127,200. See Excess Social Security or Railroad Retirement Tax Withholding in chapter 3.

It also includes Additional Medicare Tax you expect to be withheld from your wages or compensation. Your employer is responsible for withholding the 0.9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000.

When To Pay Estimated Tax

For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

If a payment is mailed, the date of the U.S. postmark is considered the date of payment. The payment periods and due dates for estimated tax payments are shown next. For exceptions to the dates listed, see Saturday, Sunday, holiday rule .

For the period: Due date:

Jan. 11 – March 31         April 18

April 1 – May 31              June 15

June 1 – Aug. 31              Sept. 15

Sept. 1 – Dec. 31             Jan. 16, next year2

              1 If your tax year does not begin on January 1,

see Fiscal year taxpayers .

              2 See January payment .

Saturday, Sunday, holiday rule.

If the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or a holiday.

January payment.

If you file your 2017 Form 1040 or Form 1040A by January 31, 2018, and pay the rest of the tax you owe, you do not need to make the payment due on January 16, 2018.

Example.

Janet Adams does not pay any estimated tax for 2017. She files her 2017 income tax return and pays the balance due shown on her return on January 26, 2018.

Janet's estimated tax for the fourth payment period is considered to have been paid on time. However, she may owe a penalty for not making the first three estimated tax payments, if required. Any penalty for not making those payments will be figured up to January 26, 2018.

Fiscal year taxpayers.

If your tax year does not start on January 1, your payment due dates are:

    The 15th day of the 4th month of your fiscal year,

    The 15th day of the 6th month of your fiscal year,

    The 15th day of the 9th month of your fiscal year, and

    The 15th day of the 1st month after the end of your fiscal year.

You do not have to make the last payment listed above if you file your income tax return by the last day of the first month after the end of your fiscal year and pay all the tax you owe with your return.

When To Start

You do not have to make estimated tax payments until you have income on which you will owe income tax. If you have income subject to estimated tax during the first payment period, you must make your first payment by the due date for the first payment period.

You have several options when paying estimated taxes. You can:

    Apply an overpayment from the previous tax year,

    Pay all your estimated tax by the due date of your first payment, or

    Pay it in installments.

If you choose to pay in installments, make your first payment by the due date for the first payment period. Make your remaining installment payments by the due dates for the later periods.

To avoid any estimated tax penalties, all installments must be paid by their due date and for the required amount.

No income subject to estimated tax during first period.

If you do not have income subject to estimated tax until a later payment period, you must make your first payment by the due date for that period. You can pay your entire estimated tax by the due date for that period or you can pay it in installments by the due date for that period and the due dates for the remaining periods. Table 2-1 shows the general due dates for making installment payments when the due date does not fall on a Saturday, Sunday, or holiday.

Table 2-1. General Due Dates for Estimated Tax Installment Payments

If you first have income on which you must pay estimated tax: Make a

payment

by:*       Make later

installments

by:*

Before April 1    April 15               June 15

                            Sept. 15

                            Jan. 15 next year

April 1–May 31 June 15               Sept. 15

                            Jan. 15 next year

June 1–Aug. 31 Sept. 15              Jan. 15 next year

After Aug. 31     Jan. 15

next year            (None)

*See January payment and Saturday, Sunday, holiday rule .

How much to pay to avoid penalty.

To determine how much you should pay by each payment due date, see How To Figure Each Payment .

Farmers and Fishermen

If at least two-thirds of your gross income for 2016 or 2017 is from farming or fishing, you have only one payment due date for your 2017 estimated tax, January 16, 2018. The due dates for the first three payment periods, discussed under When To Pay Estimated Tax do not apply to you.

If you file your 2017 Form 1040 by March 1, 2018, and pay all the tax you owe at that time, you do not need to make an estimated tax payment.

Fiscal year farmers and fishermen.

If you are a farmer or fisherman, but your tax year does not start on January 1, you can either:

    Pay all your estimated tax by the 15th day after the end of your tax year, or

    File your return and pay all the tax you owe by the 1st day of the 3rd month after the end of your tax year.

How To Figure Each Payment

After you have figured your total estimated tax, figure how much you must pay by the due date of each payment period. You should pay enough by each due date to avoid a penalty for that period. If you do not pay enough during any payment period, you may be charged a penalty even if you are due a refund when you file your tax return. The penalty is discussed in chapter 4.

Regular Installment Method

If your first estimated tax payment is due April 18, 2017, you can figure your required payment for each period by dividing your annual estimated tax due (line 16a of the 2017 Estimated Tax Worksheet (Worksheet 2-1)) by 4. Enter this amount on line 17. However, use this method only if your income is basically the same throughout the year.

Change in estimated tax.

After you make an estimated tax payment, changes in your income, adjustments, deductions, credits, or exemptions may make it necessary for you to refigure your estimated tax. Pay the unpaid balance of your amended estimated tax by the next payment due date after the change or in installments by that date and the due dates for the remaining payment periods.

If you do not receive your income evenly throughout the year, your required estimated tax payments may not be the same for each period. See Annualized Income Installment Method .

Amended estimated tax. If you refigure your estimated tax during the year, or if your first estimated tax payment is due after April 18, 2017, figure your required payment for each remaining payment period using Worksheet 2-14.

Example.

Early in 2017, Mira Roberts figures that her estimated tax due is $1,800. She makes estimated tax payments on April 18 and June 15 of $450 each ($1,800 ÷ 4).

On July 10, she sells investment property at a gain. Her refigured estimated tax is $4,100. Her required estimated tax payment for the third payment period is $2,175, as shown in her filled-in Worksheet 2-14.

If Mira's estimated tax does not change again, her required estimated tax payment for the fourth payment period will be $1,025.

Underpayment penalty.

The penalty is figured separately for each payment period. If you figure your payments using the regular installment method and later refigure your payments because of an increase in income, you may be charged a penalty for underpayment of estimated tax for the period(s) before you changed your payments. To see how you may be able to avoid or reduce this penalty, see Annualized Income Installment Method (Schedule AI) in chapter 4.

Worksheet 2-14. Amended Estimated Tax Worksheet—Illustrated

1.           Amended total estimated tax due           1.           $4,100

2.           Multiply line 1 by:                                                      

              50% (0.50) if next payment is due June 15, 2017                                                           

              75% (0.75) if next payment is due September 15,

2017                                                 

              100% (1.00) if next payment is due January 16,

2018      2.           3,075                   

3.           Estimated tax payments for all previous periods              3.           900                         

4.           Next required payment: Subtract line 3 from line 2 and enter the result (but not less than zero) here and on your payment voucher for your next required payment             4.           $2,175                

              Note. If the payment on line 4 is due January 16, 2018, stop here. Otherwise, go to line 5.                                                          

5.           Add lines 3 and 4            5.           3,075

6.           Subtract line 5 from line 1 and enter the result (but not less than zero) 6.               1,025

7.           Each following required payment: If the payment on line 4 is due June 15, 2017, enter one-half of the amount on line 6 here and on the payment vouchers for your payments due September 15, 2017, and January 16, 2018. If the amount on line 4 is due September 15, 2017, enter the amount from line 6 here and on the payment voucher for your payment due January 16, 2018    7.           $1,025

Worksheet 2-14. Amended Estimated Tax Worksheet—Blank

1.           Amended total estimated tax due           1.            

2.           Multiply line 1 by:                                                      

              50% (0.50) if next payment is due June 15, 2017                                                           

              75% (0.75) if next payment is due September 16,

2017                                                 

              100% (1.00) if next payment is due January 16,

2018      2.                                        

3.           Estimated tax payments for all previous periods              3.                                          

4.           Next required payment: Subtract line 3 from line 2 and enter the result (but not less than zero) here and on your payment voucher for your next required payment             4.                                        

              Note. If the payment on line 4 is due January 16, 2018, stop here. Otherwise, go to line 5.                                                          

5.           Add lines 3 and 4            5.            

6.           Subtract line 5 from line 1 and enter the result (but not less than zero) 6.                

7.           Each following required payment: If the payment on line 4 is due June 15, 2017, enter one-half of the amount on line 6 here and on the payment vouchers for your payments due September 15, 2017, and January 16, 2018. If the amount on line 4 is due September 15, 2017, enter the amount from line 6 here and on the payment voucher for your payment due January 16, 2018    7.            

Annualized Income Installment Method

If you do not receive your income evenly throughout the year (for example, your income from a repair shop you operate is much larger in the summer than it is during the rest of the year), your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method.

The annualized income installment method annualizes your tax at the end of each period based on a reasonable estimate of your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. To see whether you can pay less for any period, complete the 2017 Annualized Estimated Tax Worksheet (Worksheet 2-9).

You first must complete the 2017 Estimated Tax Worksheet (Worksheet 2-1) through line 16b.

Use the result you figure on line 32 of Worksheet 2-9 to make your estimated tax payments and complete your payment vouchers.

Note.

If you use the annualized income installment method to figure your estimated tax payments, you must file Form 2210 with your 2017 tax return. See Annualized Income Installment Method (Schedule AI) in chapter 4 for more information.

Instructions for the 2017 Annualized Estimated Tax Worksheet (Worksheet 2-9)

Use Worksheet 2-9 to help you follow these instructions.

The purpose of this worksheet is to determine your estimated tax liability as your income accumulates throughout the year, rather than dividing your entire year's estimated tax liability by four as if your income was earned equally throughout the year. The top of the worksheet shows the dates for each payment period. The periods build; that is, each period includes all previous periods. After the end of each payment period, complete the corresponding worksheet column to figure the payment due for that period.

Line 1.

Enter your AGI for the period. This is your gross income for the period, including your share of partnership or S corporation income or loss, minus your adjustments to income for that period. See Expected AGI—Line 1 .

Self-employment income.

If you had self-employment income, first complete Section B of this worksheet. Use the amounts on line 43 when figuring your expected AGI to enter in each column of Section A, line 1.

Line 4.

Be sure to consider all deduction limits figured on Schedule A (Form 1040), such as reducing your medical expenses by 10% or reducing certain miscellaneous deductions by 2% of your AGI. Figure your deduction limits using your expected AGI in the corresponding column of line 1 (2017 Annualized Estimated Tax Worksheet (Worksheet 2-9)).

Line 6.

Multiply line 4 by line 5 and enter the result on line 6 unless line 3 is more than $313,800 if married filing jointly or qualifying widow(er), $287,650 if head of household, $261,500 if single, or $156,900 if married filing separately. In that case, use Worksheet 2-10 to figure the amount to enter on line 6. Complete Worksheet 2–10 for each period, as necessary.

Line 7.

If you will not itemize your deductions, use Worksheet 2-4 to figure your standard deduction.

Line 10.

Multiply $4,050 by your total expected exemptions and enter the result on line 10 unless line 3 is more than $313,800 if married filing jointly or qualifying widow(er), $287,650 if head of household, $261,500 if single, or $156,900 if married filing separately.

In that case, use Worksheet 2-11 to figure the amount to enter on line 10.

Line 12.

Generally, you will use the Tax Rate Schedules to figure the tax on your annualized income. However, see below for situations where you must use a different method to compute your estimated tax.

Tax on child's investment income.

You must use a special method to figure tax on the income of the following children who have more than $2,100 of investment income.

    Children under age 18 at the end of 2017.

    The following children if their earned income is not more than half their support.

        Children age 18 at the end of 2017.

        Children who are full-time students at least age 19 but under age 24 at the end of 2017.

Tax on net capital gain.

The regular income tax rates for individuals do not apply to a net capital gain. Instead, your net capital gain is taxed at a lower maximum rate.

The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.

Tax on qualified dividends and capital gains.

For 2017, your capital gain and dividends rate will depend on your income.

Tax on capital gain or qualified dividends. If the amount on line 1 includes a net capital gain or qualified dividends, use Worksheet 2-12 to figure the amount to enter on line 12.

Tax if excluding foreign earned income or excluding or deducting foreign housing. If you expect to claim the foreign earned income exclusion or the housing exclusion or deduction on Form 2555 or Form 2555-EZ, use Worksheet 2-13 to figure the amount to enter on line 12.

Line 13.

If you file Form 1040, add the tax from Forms 8814, 4972, and 6251 for the period. If you file Form 1040A, add the amount from the Alternative Minimum Tax Worksheet found in the instructions. Also include any recapture of an education credit for each period. You may owe this tax if you claimed an education credit in an earlier year and you received either tax-free educational assistance or a refund of qualifying expenses for the same student after filing your 2016 return.

Use the 2016 forms or worksheets to see if you will owe any of the taxes just discussed. Figure the tax based on your income and deductions during the period shown in the column headings. Multiply this amount by the annualization amounts shown for each column on line 2 of the 2017 Annualized Estimated Tax Worksheet (Worksheet 2-9). Enter the result on line 13 of this worksheet.

Line 15.

Include all the nonrefundable credits you expect to claim because of events that will occur during the period.

Note.

When figuring your credits for each period, annualize any item of income or deduction to figure each credit. For example, if you need to use your AGI to figure a credit, use line 3 of Worksheet 2-9 to figure the credit for each column.

Line 18.

Add your expected other taxes.

Other taxes include the following.

    Additional tax on early distributions from:

        An IRA or other qualified retirement plan,

        A tax-sheltered annuity, or

        A modified endowment contract entered into after June 20, 1988.

    Household employment taxes if:

        You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income, or

        You would be required to make estimated tax payments even if you did not include household employment taxes when figuring your estimated tax.

    Amounts on Form 1040 written on the line for "other taxes" (line 62 on the 2016 Form 1040). But do not include recapture of a federal mortgage subsidy; tax on excess golden parachute payments; look-back interest due under section 167(g) or 460(b) of the Internal Revenue Code; excise tax on insider stock compensation from an expatriated corporation; uncollected social security, Medicare, or RRTA tax on tips or group-term life insurance.

    Repayment of the first-time homebuyer credit if the home will cease to be your main home in 2017. See Form 5405 for exceptions.

    Additional Medicare Tax. A 0.9% Additional Medicare Tax applies to your combined Medicare wages and self-employment income and/or your RRTA compensation that exceeds the amount listed in the following chart, based on your filing status.

    Filing Status   Threshold Amount

    Married filing jointly $250,000

    Married filing separately         $125,000

    Single              $200,000

    Head of household    $200,000

    Qualifying Widow(er)               $250,000

    Medicare wages and self-employment income are combined to determine if your income exceeds the threshold. A self-employment loss should not be considered for purposes of this tax. RRTA compensation should be separately compared to the threshold.

    Your employer is responsible for withholding the 0.9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays you in excess of $200,000 in 2017. You should consider this withholding, if applicable, in determining whether you need to make an estimated payment.

    Net Investment Income Tax (NIIT). The NIIT is 3.8% of the lesser of your net investment income or the excess of your modified adjusted gross income over a specified threshold amount. Threshold amounts:

    Filing Status   Threshold Amount

    Married filing jointly $250,000

    Married filing separately         $125,000

    Single              $200,000

    Head of household    $200,000

    Qualifying Widow(er)               $250,000

Line 20.

Include all the refundable credits (other than withholding credits) you can claim because of events that occurred during the period. These include the earned income credit, additional child tax credit, fuel tax credit, net premium tax credit, any refundable credit from Form 8885, and refundable American opportunity credit.

Note.

When figuring your refundable credits for each period, annualize any item of income or deduction used to figure each credit.

Line 29.

If line 28 is smaller than line 25 and you are not certain of the estimate of your 2017 tax, you can avoid a penalty by entering the amount from line 25 on line 29.

Line 31.

For each period, include estimated tax payments made and any excess social security and railroad retirement tax.

Also include estimated federal income tax withholding. One-fourth of your estimated withholding is considered withheld on the due date of each payment period. To figure the amount to include on line 31 for each period, multiply your total expected withholding for 2017 by:

    25% (0.25) for the first period,

    50% (0.50) for the second period,

    75% (0.75) for the third period, and

    100% (1.00) for the fourth period.

 However, you may choose to include your withholding according to the actual dates on which the amounts will be withheld. For each period, include withholding made from the beginning of the period up to and including the payment due date. You can make this choice separately for the taxes withheld from your wages and all other withholding. For an explanation of what to include in withholding, see Total Estimated Tax Payments Needed—Line 16a .

Nonresident aliens.

If you will file Form 1040NR and you do not receive wages as an employee subject to U.S. income tax withholding, the instructions for the worksheet are modified as follows.

    Skip column (a).

    On line 1, enter your income for the period that is effectively connected with a U.S. trade or business.

    On line 21, increase your entry by the amount determined by multiplying your income for the period that is not effectively connected with a U.S. trade or business by the following.

        72% for column (b).

        45% for column (c).

        30% for column (d).

    However, if you can use a treaty rate lower than 30%, use the percentages determined by multiplying your treaty rate by 2.4, 1.5, and 1, respectively.

    On line 26, enter one-half of the amount from line 16c of the Form 1040-ES (NR) 2017 Estimated Tax Worksheet in column (b), and one-fourth in columns (c) and (d) of Worksheet 2-9.

    On lines 24 and 27, skip column (b).