When to Use IRS Form 1040-ES

Audrey M. Jones
Colums with numbers and pencil

Internal Revenue Service (IRS) Form 1040ES is titled "Estimated Tax for Individuals." This form guides individual taxpayers through a multi-step process to determine their tax liability based on the amount of money they anticipate earning and the deductions and credits available to them.

What is Form 1040ES?

Form 1040ES is not a tax return form. Instead, it is a form that guides taxpayers through calculating the amount of taxes they estimate owing to the IRS. Therefore, its completion does not substitute for a tax return. It may be filed in conjunction with a tax return or at any time throughout the year.

Who Needs to File Form 1040ES?

The form is commonly used by individuals who do not have their taxes withheld from their paychecks. This includes self-employed individuals, freelance workers or independent contractors. However, it can also be used by any individual who believes that their withholding will be insufficient to cover their total year's tax liability.

Only U.S. citizens, resident aliens, non-resident aliens or residents of U.S. holdings can use the form. Examples of U.S. holdings include Guam and Puerto Rico.

The IRS recommends that any individual expecting to owe more than $1,000 in taxes, but who does not have payment for those taxes withheld, to file the form. Filing it and making payments may prevent penalties and interest from being assessed against the taxpayer.

How Is the Form Completed?

Form 1040ES is akin to a package of information. In total, it consists of 12 pages, the first five of which explain:

  • When the form should be used
  • Different calculation maximums and limits
  • The types of different credits and deductions that may be available and how to handle them
  • The paperwork that a taxpayer will need to complete the form
  • The amount of standard deductions available to taxpayers in 2011

These pages also provide the 2011 payment due dates and the address to which they may be sent. Alternatively, a taxpayer may make their payments online. Payments are due at least quarterly, but a taxpayer may decide to submit payment more frequently.

Part I: Self-Employment Tax and Deduction Worksheet

This section, which begins on page six, guides taxpayers through a 13 step process to calculate their estimated adjusted gross income. The numbers used are based on the taxpayer's prior year's return; the form provides the exact lines on where the necessary information is located on different forms.

This section requires that the taxpayer provide separate numbers for the amount of income that is subject to self-employment tax and the amount due to wages. The latter type of income refers to any payments that are received by an employer and which have taxes subtracted from them.

The very bottom of this section contains the tax rate schedule. This information pertains to the 2011 rates, but should be updated by the IRS for each year, if necessary. This percentage is necessary to complete the remainder of the form.

Part II: Estimated Tax Worksheet

This section guides the taxpayer through 17 steps to determine how much tax liability they will owe. It requires providing the amount of income the taxpayer earned in the previous year and the amount of any credits and deductions to which the taxpayer is entitled. The latter numbers are provided in the first five pages of the worksheet.

Record and Payment Stubs

On pages 9-12, the form includes a register and payment stubs for the taxpayer's use. The taxpayer may use the register to record the dates and amounts of periodic payments. This record will assist in calculating the total amount of any remaining tax owed or refund due during tax season.

The payment stubs are intended to be included with any periodic payment the taxpayer mails to the IRS. These stubs contain the basic information that the IRS needs to process payment and credit it to the taxpayer's account.

Completing Your Form 1040ES

If you are self-employed or do not have taxes withheld from your paycheck, you may need to complete Form 1040ES to determine the amount of taxes you owe. Making periodic payments according to the established due dates makes it less likely that you will be subjected to penalties or fines for paying your taxes late. Seek professional advice if you are unsure whether you need to submit estimated tax payments or how to complete the form.

When to Use IRS Form 1040-ES