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Chapter 5. Tax Withholding and Estimated Tax

Excess social security, Medicare, or railroad retirement tax withholding.
Your credit for excess Medicare tax withholding must be figured separately
from your credit for excess social security or tier 1 railroad retirement
tax withholding. You will have excess social security or tier 1 railroad
retirement tax withholding for 1992 only if your wages from two or more
employers exceeded $55,500. You will have excess Medicare tax withholding
only if your wages from two or more employers exceeded $130,200. See Excess
Social Security, Medicare, or Railroad Retirement Tax Withholding in Chapter
36.

Important change for 1992

Estimated tax payments - limit on use of prior year's tax. Beginning in 1992
certain taxpayers (other than farmers and fishermen) may not be able to use
100% of their prior year's tax to figure their current year's estimated tax.
See limit on use of prior year's tax later in this chapter.

Important Changes for 1993

Some of the tax changes that you should consider when you figure your income
tax withholding or estimated tax for 1993 are discussed in this section. For
information on other changes, see Publication 553, Highlights of 1992 Tax
Changes.

For tax years beginning after 1992 you will no longer be able to elect to
have tax not withheld on pension plans that are eligable to be rolled over
but are not transferred to an eligible transferee plan. The withholding
rate will be 20%.

Personal exemption. For 1993, the personal exemption amount for you, your
spouse, and each dependent has increased. See Publication 505 for further
information.

Phaseout of personal exemptions. Your deduction for personal exemptions is
reduced by 2% for each $2,500 ($1,250 if you are married filing separately),
or part of that amount, by which your adjusted gross income exceeds an amount
based on your filing status. For further information see Publication 505.

Reduction of itemized deductions. For 1993, certain of your itemized
deductions are reduced. The reduction cannot be more than 80% of your
affected deductions. Itemized deductions subject to the reduction are those
other than medical expenses, investment interest, casualty and theft losses,
or gambling losses. This reduction is not applied in computing alternative
minimum tax, nor does it apply to estates or trusts. For further information
see Publication 505.

Standard deduction. Individuals who do not itemize deductions have an
increased standard deduction for 1993. See Publication 505, Tax Withholding
and Estimated Tax, or the instructions for Form 1040─ES, Estimated Tax for
Individuals.

Tax for children under age 14. Investment income of a child under age 14
may be taxed at the parent's tax rate. See Publication 505 for more
information.

Alternative minimum tax. Beginning July 1, 1992 the amount of appreciation
with respect to a charitable contribution of capital gain property that is
tangible personal property is a gain treated as a tax preference item. The
treatment of the appreciation as a tax preference is suspended only through
June 30, 1992.

Expired tax items. The following items expired June 30, 1992. However
congress is currently considering a further extension of some of these.
For more information see Publication 505.

∙   Exclusion for employer-provided educational assistance,

∙   Exclusion for employer-provided group legal services,

∙   Deduction for 25% of the health insurance costs of self-employed
    individuals,

∙   Targeted jobs credit,

∙   Business energy tax credit,

∙   Low-income housing credit, and

∙   Research and experimentation credit.

Proposed Changes for 1993

As this publication was being prepared for print, Congress was considering
changes to the tax law that could affect your 1993 tax. The following were
some of the proposals being considered.

∙   Extend some or all of the tax benefits that expired June 30, 1992.
    (See Expired tax items under Important Changes for 1993, earlier.)

For information on late legislative changes, see Publication 553, or for
estimated tax changes, see Publication 505.

Introduction

This chapter discusses how to pay your tax as you earn or receive income
during the year. In general, the federal income tax is a pay-as-you-go tax.
There are two ways to pay as you go:

.  Withholding. If you are an employee, your employer probably withholds
   income tax from your pay. Tax is also usually withheld from certain other
   income - including pensions, bonuses, commissions, and gambling winnings.
   In each case, the amount withheld is paid to the Internal Revenue Service
   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. Estimated tax is used to pay not only income tax, but
   self-employment tax and alternative minimum tax as well.

This chapter explains both of these methods. In addition, it explains:

∙  Credit for Withholding and Estimated Tax. When you file your 1992 income
   tax return, take credit for all the income tax withheld from your salary,
   wages, pensions, etc., and for the estimated tax you paid for 1992.

∙  Underpayment Penalty. If you did not pay enough tax in 1992 either
   through withholding or by making estimated tax payments, you will have an
   underpayment of estimated tax, and you may have to pay a penalty. The IRS
   will compute this penalty for you, see Underpayment Penalty, near the end
   of this chapter.

Related publications and forms.

This chapter refers to several publications and forms that you may need.
The list of forms does not include Forms 1040, 1040A, and 1040EZ. For more
information, you may want to order any of the following:

      Publication 505, Tax Withholding and Estimated Tax

      Publication 553, Highlights of 1992 Tax Changes

      Publication 919, Is My Withholding Correct for 1993?

      Form W-4, Employee's Withholding Allowance Certificate

      Form W-4P, Withholding Certificate for Pension or Annuity Payments

      Form W-4S, Request for Federal Income Tax Withholding from Sick Pay

      Form 1040-ES, Estimated Tax for Individuals

      Form 2210, Underpayment of Estimated Tax by Individuals and Fiduciaries

Withholding

Income tax is withheld from the following kinds of income:

Salaries and wages. Income tax is withheld from the pay of most employees.
Your pay includes bonuses, commissions, and vacation allowances, in addition
to your regular pay. It also includes reimbursements and other expense
allowances paid under a nonaccountable plan. See Supplemental Wages, later.

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. 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 make estimated tax payments,
as discussed later under Estimated Tax.

Farmworkers. Income tax is generally withheld from your cash wages for work on
a farm unless your employer:

1)  Pays you cash wages of less than $150 during the year, and

2)  Pays cash wages to all employees totaling less than $2,500 during the
    year.

If you receive cash wages not subject to withholding or noncash wages, you can
ask your employer to withhold income tax. If your employer does not agree to
withhold tax, or if not enough is withheld, you may have to make estimated tax
payments, as discussed later under Estimated Tax.

Tips. The tips you receive and report to your employer while working as an
employee are counted in with your regular wages to figure the amount withheld.

Taxable fringe benefits. Your employer will withhold income tax from most
taxable fringe benefits paid to you either at a flat 20% rate or at your
regular rate of withholding.

Sick pay. Income tax is withheld from sick pay you receive from your employer
or an agent of your employer, just as it is from your salaries and wages.
If you receive sick pay from someone who is not acting as an agent of your
employer, such as an insurance company, you can usually arrange to have income
tax withheld from the sick pay. A special rule covers sick pay paid to you
under certain union agreements.

Pensions and annuities. Income tax is withheld from your pension or annuity,
unless you choose not to have it withheld.

Gambling winnings. Income tax is withheld from certain gambling winnings at
a flat 20% rate.

Withholding on Salaries and Wages

The amount of income tax withheld from your regular pay depends on two things:

1)  The amount you earn, and

2)  The information you give your employer on Form W─4.

Form W─4 includes three types of information that your employer will use to
figure your withholding:

1)  Whether to withhold at the single rate or at the lower married rate,

2)  How many withholding allowances you claim (each allowance reduces the
    amount withheld), and

3)  Whether you want an additional amount withheld.

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

New job. When you start a new job, you must fill out Form W─4 and give it to
your employer. Your employer should have copies of the form. If you later need
to change the information you gave, you must fill out a new form.

If you go back to work after a period of unemployment, or if you work only
part 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,
explained later.

Changing your withholding. Events during the year may change your marital
status or the exemptions, adjustments, deductions, or credits you expect to
claim on your return. When this happens, you may need to give your employer
a new Form W─4 to change your withholding status or allowances.

You must give your employer a new Form W─4 within 10 days after:

1)  Your divorce, if you have been claiming married status, or

2)  Any event that decreases the withholding allowances you can claim.

Generally, you can submit a new Form W─4 at any time you wish to change your
withholding allowances for any other reason.

If events in 1993 will decrease your withholding allowances for 1994, you must
give your employer a new Form W─4 by December 1, 1993. If the event occurs in
December 1993, submit a new Form W─4 within 10 days.

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. For information
about asking your employer to use the part-year method, see Part-year method
under Withholding on Salaries and Wages in Chapter 1 of Publication 505.

Cumulative wage method. If you change 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.
See Cumulative wage method under Withholding on Salaries and Wages in Chapter
1 of Publication 505 for information about asking your employer to use the
cumulative wage method.

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
little or too much. See Getting the Right Amount of Tax Withheld, later. If
too much or too little tax is being withheld, you should give your employer
a new Form W─4 to change your withholding.

Completing Form W─4

The following discussions explain how to complete your Form W─4.

Marital status (line 3). The tax rates for married people filing a joint
return are lower than those for single people. Therefore, there is a lower
married withholding rate for people who can use the tax rates for joint
returns. Everyone else must have tax withheld at the higher single rate.

You must claim single status if either of the following applies.

1)  You are single. If you are divorced, or separated from your spouse under
    a court decree of separate maintenance, you are considered single.

2)  You are married, but you are neither a citizen nor a resident of the
    United States, or your spouse is neither a citizen nor a resident of the
    United States. However, if one of you is a citizen or a resident, you can
    choose to have the other treated as a resident. You can then file a joint
    return and claim married status on your Form W─4. See Nonresident Spouse
    Treated as a Resident in Chapter 1 of Publication 519, U.S. Tax Guide for
    Aliens, for more information.

You can claim married status if either of the following applies.

1)  You are married and neither you nor your spouse is a nonresident alien.
    You are considered married for the whole year even if your spouse died
    during the year.

2)  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 two years and you provide a home for your dependent
    child. See Qualifying Widow(er) With Dependent Child in Chapter 2.

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. Therefore,
even if you qualify for the married rate, you can still choose to have tax
withheld at the higher single rate. (Also, see Getting the Right Amount of
Tax Withheld, later.)

Withholding allowances (line 5). 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:

1)  How many exemptions you can take on your tax return,

2)  Whether you have income from more than one job,

3)  What deductions, adjustments to income, and credits you expect to have
    for the year, and

4)  Whether you will file as head of household.

If you are married, it also depends on whether your spouse also works and
claims any allowances on his or her own Form W─4. If you both work, you may
figure your combined allowances and divide them between you. See Two jobs,
later.

Form W─4 worksheets. Form W─4 has worksheets to help you figure how many
withholding allowances you can claim. The worksheets are for your own records.
Do not give them to your employer.

You are not required to use the worksheets if you use a more accurate method
of withholding. See Alternative method of figuring withholding allowances
under Completing Form W─4 and Worksheets in Chapter 1 of Publication 505 for
more information.

Withholding and estimated tax. Before you figure your withholding allowances,
use your estimated adjustments, deductions, and tax credits to reduce
your estimated tax. The Deductions and Adjustments Worksheet on page 2 of
Form W─4 does this for you. But if you use an alternative method of figuring
withholding allowances, take into account only the amount of these items
remaining after you have reduced your estimated tax to zero.

Two jobs. If you have income from two jobs at the same time, or if both you
and your spouse are employed and you expect to file a joint return, 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, or divide them in any other way you wish.

If both you and your spouse are employed and you expect to file a joint
return, figure your withholding allowances using your combined income,
adjustments, deductions, exemptions, and credits. You can divide your
total allowances in any way you wish, but you cannot claim an allowance
that your spouse also claims.

If you and your spouse expect to file separate returns, figure your allowances
separately based on your own individual income, adjustments, deductions,
exemptions, and credits.

Personal Allowances Worksheet. Use the Personal Allowances Worksheet on page
1 of Form W─4 to figure your withholding allowances for exemptions. Add the
special allowance for only one job, the allowance for head of household
status, and the allowance for the child and dependent care credit (if
they apply) to your total allowances.

Special allowance (worksheet line B). You can claim the special allowance
if any of the following apply.

1)  You are single, and you have only one job at a time.

2)  You are married, you have only one job at a time, and your spouse does
    not work.

3)  Your wages from a second job or your spouse's wages (or the total of
    both) are $1,000 or less.

Head of household (worksheet line E). You can claim one additional withholding
allowance if you expect to file as head of household on your tax return. To
find out whether you qualify, see Head of Household in Chapter 2.

Child and dependent care credit (worksheet line F). You can claim one
additional withholding allowance if you expect to have at least $1,500 of
qualifying child or dependent care expenses that you plan to claim a credit
for on your tax return. For information on this credit, see Chapter 33.

Instead of using line F, you can choose to figure allowances for the child and
dependent care credit (and other credits you expect to claim on your return)
as explained next.

Deductions and Adjustments Worksheet. To adjust your withholding allowances
for deductions, adjustments, tax credits, and nonwage income, use the
Deductions and Adjustments Worksheet on page 2 of Form W─4.

Tax credits. You can take tax credits into account by adding an extra amount
on line 5 of the worksheet. You must use special tables to change the credit
amount to an equivalent deduction amount. See Tax credits under Deductions
and Adjustments Worksheet in Chapter 1 of Publication 505 for information.

Nonwage income. You may need to reduce the number of withholding allowances
you would otherwise claim if you expect to receive taxable nonwage
income. This includes interest, dividends, net rental income, unemployment
compensation, alimony received, gambling winnings, prizes and awards, hobby
income, capital gains, royalties, and partnership income.

Two-Earner/Two-Job Worksheet. You may need to complete this worksheet if you
have two jobs or a working spouse. You can also use this worksheet to figure
additional withholding if you expect to owe an amount other than income tax,
such as self-employment tax.

For more information about Form W─4 and a filled-in example, see Withholding
on Salaries and Wages in Chapter 1 of Publication 505.

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 accurately complete all the Form W─4
worksheets that apply to you and give your employer a new form when changes
occur. 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.

1)  You are married and both you and your spouse work.

2)  You have more than one job at a time.

3)  You have nonwage income, such as interest, dividends, alimony, or
    self-employment income.

4)  You will owe additional amounts with your return, such as self-employment
    tax.

5)  Your withholding is based on obsolete Form W─4 information for a
    substantial part of the year.

To make sure you are getting the right amount of tax withheld, get Publication
919. It will help you compare the total tax to be withheld in 1993 with the
tax you can expect to figure on your return. It also will help you determine
how much additional withholding is needed each payday to avoid owing tax when
you file your return. If you do not have enough tax withheld, you may have to
make estimated tax payments, as explained under Estimated Tax, later.

Rules Your Employer Must Follow

The following are some of the withholding rules that can affect how you fill
out your Form W─4 and how you handle problems that may arise. For other rules,
see Rules Your Employer Must Follow under Withholding on Salaries and Wages in
Chapter 1 of Publication 505.

Putting a new Form W─4 into effect. When you start a new job, your employer
should give you a Form W─4 to fill out. The information you give on the form
will be used to figure your withholding, beginning with your first payday.

If you later fill out a new Form W─4, your employer can put it into effect as
soon as it is practical to do so. 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.

Withholding without a 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 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 you any of the tax withheld under your old Form W─4.

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
you the amount that was incorrectly withheld. If you are not repaid, you will
receive credit on your tax return for the full amount actually withheld.

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 1993 only if both the following
situations apply.

1)  For 1992 you had a right to a refund of all income tax withheld because
    you had no tax liability.

2)  For 1993 you expect a refund of all income tax withheld because you
    expect to have no tax liability.

Student. If you are a student, you are not automatically exempt. But if you
work only part time and during the summer, you may qualify for exemption.

Example 1. You are a high school student and expect to earn $2,400 from a
summer job. You do not expect to have any other income during 1993, and your
parents will be able to claim you as a dependent on their tax return. You
worked last summer and had $200 federal income tax withheld from your pay. The
entire $200 was refunded when you filed your 1992 return. Using the Exemption
From Withholding on Form W─4 chart, you find that you can claim exemption from
withholding.

Age 65 or older or blind. If you are 65 or older or blind, use one of the
worksheets in Chapter 1 of Publication 505, under Exemption From Withholding,
to help you decide whether you can claim exemption from withholding. (Do
not use either of those worksheets if you will itemize deductions or claim
dependents or tax credits on your 1993 return - see the following discussion
instead.)

Itemizing deductions or claiming dependents or tax credits. If you had no tax
liability for 1992 and you will itemize your deductions or claim dependents or
tax credits on your 1993 return, use the 1993 Estimated Tax Worksheet in Form
1040─ES to figure your 1993 expected tax liability. You can claim exemption
from withholding only if your total expected tax liability (line 13c of the
worksheet) is zero.

Claiming exemption. To claim exemption, you must give your employer a Form W─4
with lines 7 and 8 completed.

Your employer must send the IRS a copy of your Form W─4 if you claim exemption
from withholding and your pay is expected to usually be more than $200 a week.
If it turns out that you do not qualify for exemption, the IRS will send both
you and your employer a written notice.

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 1993, but you expect to owe income tax
for 1994, you must file a new Form W─4 by December 1, 1993.

An exemption is good for only one year. 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, and certain
sick pay. Your employer or other payer of supplemental wages may withhold
income tax from these wages at a flat 20% rate or figure withholding using
the same method used for your regular wages.

Also see Withholding on Sick Pay, later.

Expense allowances. Reimbursements or other expense allowances paid by
your employer under a nonaccountable plan are treated as supplemental
wages. A nonaccountable plan is an arrangement that does not require you to
substantiate your business expenses or does not require you to return your
employer's payments that are more than the substantiated expenses.

Reimbursements or other expense allowances paid under an accountable plan are
treated as paid under a nonaccountable plan to the extent they are more than
your substantiated expenses, unless you return the excess payments within a
reasonable period of time.

For more information about accountable and nonaccountable expense allowance
plans, see If You Were Reimbursed under How to Report in Chapter 28.

Penalties

If you make statements or claim withholding allowances on your Form W─4 that
reduce the amount of tax withheld, and there is no reasonable basis for such
statements or allowances at the time you prepare your Form W─4, you may have
to pay a penalty of $500.

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 one 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 - an honest mistake - will not result in a penalty. 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 penalized.

Withholding on Tips

The tips you receive while working on your job are considered part of your
pay. They must be included 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, the tips you report to your employer will be taken
into account when your employer figures how much to withhold from your regular
pay.

See Chapter 7 for information on reporting your tips to your employer. For
more information on the withholding rules for tip income, see Publication 531,
Reporting Income From Tips.

Figuring the 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:

1)  By withholding at the regular rate on the sum of your pay plus your
    reported tips, or

2)  By withholding at the regular rate on your pay plus an amount equal to
    20% of your reported tips.

Pay too low. If your regular pay is too low for your employer to withhold all
the tax (including social security tax, Medicare tax, or railroad retirement
tax) due on your pay plus your tips, you may give your employer money to cover
the shortage.

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

Allocated tips. Your employer should not withhold income tax, social
security tax, Medicare tax, or railroad retirement tax on any allocated tips.
Withholding is based only on your pay plus your reported tips. Any incorrectly
withheld tax should be refunded to you. See Tip Allocation in Chapter 7 for
more information.

Withholding on 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 for the period the benefits are paid
or are treated as paid.

For information on taxable fringe benefits, see Fringe Benefits under Employee
Compensation in Chapter 6.

Your employer can choose not to withhold income tax on the value of your
personal use of a car, truck, or other highway motor vehicle provided by
your employer. Your employer must notify you if this choice is made.

When benefits are treated as paid. Your employer can choose to treat a fringe
benefit as paid by the pay period, or by the quarter, or on some other basis
as long as the benefit is treated as paid at least once a year. The benefit
can be treated as 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 actually provided
during November or December as paid in the next year. Your employer must
notify you if this rule is used.

Example. Your employer treats the value of benefits paid from November 1,
1991, through October 31, 1992, as paid to you in 1992. To determine the total
value of benefits paid to you in 1993, your employer will add the value of any
benefits paid in November and December of 1992 to the value of any benefits
paid in January through October of 1993.

Exceptions. Your employer cannot choose when to withhold tax on certain
benefits. These benefits are transfers 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 when they are actually transferred.

How withholding is figured. Your employer may either add the value of a fringe
benefit to your regular pay and figure income tax withholding on the total or
withhold 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 may 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 tax paid to the IRS on
your behalf.

How your employer reports your benefits. Your employer must report on Form
W─2, Wage and Tax Statement, the total of the taxable fringe benefits paid
or treated as paid to you during the year and the income 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. For more information, see How to Report Fringe
Benefits under Fringe Benefits in Chapter 6.

Withholding on 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 just as it is from your regular pay.

However, if you receive sick pay from a third party who is not acting as an
agent of your employer, income tax will be withheld only if you choose to
have it withheld. See Form W─4S, later.

If you receive payments under a plan in which your employer does not
participate, 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 amount of income tax
withholding may be determined by the agreement. 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 who is not an agent of your employer, you must fill out Form W─4S,
Request for Federal Income Tax Withholding From Sick Pay. 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.

If you do not request withholding on Form W─4S, or if you do not have enough
tax withheld, you may have to make estimated tax payments. If you do not pay
enough estimated tax or have enough income tax withheld, you may have to pay a
penalty. See Who Must Make Estimated Tax Payments and Underpayment Penalty,
later in this chapter.

Withholding on 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:

1)  An individual retirement arrangement (IRA),

2)  A life insurance company under an endowment, annuity, or life insurance
    contract,

3)  A pension, annuity, or profit-sharing plan,

4)  A stock bonus plan, and

5)  Any other plan that defers the time you receive compensation.

The amount withheld depends on whether you receive payments spread out over
more than one year (periodic payments) or whether you receive all the payments
within one year (nonperiodic payments).

Nontaxable part. A part of your pension or annuity may not be taxable. This
part will be determined by rules discussed in Chapter 11. Income tax will
not be withheld from the part of your pension or annuity that is nontaxable.
Therefore, 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, Withholding
Certificate for Pension or Annuity Payments, or a similar form provided by the
payer. Follow the rules discussed under Withholding on Salaries and Wages,
earlier, to fill out your Form W─4P.

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

1)  If you do not fill out a withholding certificate, tax will be withheld as
    if you were married and were claiming three withholding allowances.

2)  Your certificate will not be sent to the IRS regardless of the number of
    allowances you claim on it.

3)  You can choose not to have tax withheld, regardless of how much tax you
    owed last year or expect to owe this year. You do not have to qualify for
    exemption. See Choosing Not to Have Income Tax Withheld, later.

4)  If you do not give the payer your social security number (in the required
    manner) or the IRS notifies the payer, before any payment or distribution
    is made, that you gave it an incorrect social security number, tax will
    be withheld as if you were single and were claiming no withholding
    allowances.

Note. Military retirement pay generally is treated in the same manner as wages
and not as a pension or annuity for income tax withholding purposes. Military
retirees should use Form W─4, not Form W─4P.

Nonperiodic Payments

Tax will be withheld at a 10% rate on any nonperiodic payments you receive,
unless they are part of a "qualified total distribution." The amount of
tax withheld from a qualified total distribution is specified in tables.

A qualified total distribution is payment within one year of your entire
interest in a pension, profit-sharing, stock bonus, or qualified annuity plan.

Because withholding on nonperiodic payments does not depend on withholding
allowances or whether you are married or single, you cannot use Form W─4P to
tell the payer how much to withhold. But you can use Form W─4P to specify that
an additional amount be withheld. You can also use Form W─4P to choose not to
have tax withheld or to revoke a choice not to have tax withheld.

Note. The 10% rate of withholding on nonperiodic payments is lower than the
lowest tax rate (15%). Therefore, you may need to use Form W-4P to ask for
additional withholding. If you do not have enough tax withheld, you may need
to make estimated tax payments as explained later.

Choosing Not to Have Income Tax Withheld

You can choose not to have income tax withheld from your pension or annuity,
whether the payments are periodic or nonperiodic. The payer will tell you how
to make this choice. If Form W─4P is used, check the box on line 1 to make
this choice. This choice will stay in effect until you decide you want
withholding.

If you do not give the payer your social security number (in the required
manner) or the IRS notifies the payer, before any payment or distribution is
made, that you gave it an incorrect social security number, your choice not
to have tax withheld will not be honored.

If you choose not to have any income tax withheld from your pension or
annuity, or if you do not have enough withheld, you may be required to
make estimated tax payments. See Estimated Tax, later.

If you do not pay enough tax either through estimated tax or withholding, you
may have to pay a penalty. This penalty is discussed later under Underpayment
Penalty.

Outside United States. If you are a U.S. citizen or resident alien who chooses
not to have tax withheld from pension or annuity benefits, you must give
the payer of the benefits a home address in the United States or in a U.S.
possession. Otherwise, the payer must withhold tax. For example, the payer
would have to 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.

Revoking a choice not to have tax withheld. If you want to revoke your choice
not to have tax withheld, the payer of your pension or annuity will tell you
how. If the payer gives you Form W─4P, write "Revoked" by the checkbox on line
1 of the form.

If you get periodic payments and do not complete the rest of the form, tax
will be withheld as if you were married and were claiming three allowances.
If you want tax withheld at a different rate, you must complete the rest of
the form.

Notice required of payer. The payer of your pension or annuity is required
to send you a notice telling you about your right to choose not to have tax
withheld.

Withholding on Gambling Winnings

Income tax is withheld from certain kinds of gambling winnings. The amount
withheld is 20% of the proceeds (the amount of your winnings minus the amount
of your bet).

Gambling winnings from the following sources are subject to income tax
withholding:

1)  A state lottery, if the proceeds are more than $5,000,

2)  A wagering pool, sweepstakes, or lottery (such as a drawing or church
    raffle), if the proceeds are more than $1,000, and

3)  Any other wager, including wagers on horse races, dog races, and jai
    alai, if the proceeds are more than $1,000 and at least 300 times the
    amount of the bet.

Other gambling winnings, including winnings from bingo, keno, and slot
machines, are not subject to income tax withholding. If you receive gambling
winnings not subject to withholding, you may need to make estimated tax
payments. (See Estimated Tax, later.)

If you do not pay enough tax through withholding or estimated tax payments,
you may be subject to a penalty. (See Underpayment Penalty, later.)

Form W─2G. If income tax is withheld from your gambling winnings, you should
receive a Form W─2G, Certain Gambling Winnings, showing the amount you won and
the amount withheld. Gambling losses are deductible only to the extent that
they offset gambling winnings. You must use Schedule A, Form 1040. For more
information, see Withholding on Gambling Winnings in Chapter 1 of Publication
505.

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). Your TIN is either a social security number or
an employer identification number.

These payments generally are not subject to withholding. However, "backup"
withholding is required in certain situations. Backup withholding can apply to
most kinds of payments that are reported on Form 1099.

Payments made to you are subject to backup withholding at a flat 20% rate in
the following situations.

1)  You do not give the payer your TIN in the required manner.

2)  The IRS notifies the payer that the TIN you gave is incorrect.

3)  You are required, but fail, to certify that you are not subject to backup
    withholding.

4)  The IRS notifies the payer to start withholding on interest or dividends
    because you have underreported interest or dividends on your income tax
    return. The IRS will do this only after it has mailed you four notices
    over a 120-day period.

See Backup Withholding in Chapter 1 of Publication 505 for more information.

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 one year,
or both.

Estimated Tax

Beginning in 1992, certain taxpayers (other than farmers and fishermen) may
not be able to use 100% prior year's tax to figure their current year's
estimated tax payments. See limit on use of prior year's tax, later.

Estimated tax is the method used to pay tax on income that is not subject
to withholding. This includes income from self-employment, unemployment
compensation, 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. To figure and pay estimated tax, use Form 1040─ES,
Estimated Tax for Individuals.

Estimated tax is used to pay both income tax and self-employment tax, as well
as other taxes and amounts reported on Form 1040. If you do not pay enough
through withholding or by making estimated tax payments, you may be charged a
penalty. If you do not pay enough by the due date of each payment period (see
When to Pay Estimated Tax, later), you may be charged a penalty even if you
are due a refund when you file your tax return. For information on when the
penalty applies, see Underpayment Penalty, later.

Who Must Make Estimated Tax Payments

Generally, you must make estimated tax payments for 1993 if you expect to owe,
after subtracting your withholding and credits, at least $500 in tax for 1993,
and you expect your withholding and credits to be less than the smaller of:

1)  90% of the tax to be shown on your 1993 tax return, or

2)  100% of the tax shown on your 1992 tax return. (The return must cover all
    12 months.) But see caution below.

Caution
-------
Beginning in 1992, certain taxpayers (other than farmers and fishermen) may
not be able to use 100% prior year's tax to figure their current year's
estimated tax payments. See limit on use of prior year's tax, later.

See the Who Must Pay Estimated Tax chart in this chapter for more help.

If all your 1993 income will be subject to income tax withholding, you
probably do not need to make estimated tax payments.

No tax liability last year. You do not have to pay estimated tax for 1993 if
you had no tax liability for your 1992 tax year and you were a U.S. citizen
or resident for the whole year. Your 1992 tax year must have been a 12-month
period.

You had no tax liability for 1992 if your total tax (defined later under
Required annual payment) was zero or you were not required to file an income
tax return.

Married taxpayers. To figure whether you must make estimated tax payments for
1993, apply the rules discussed here to your 1993 separate estimated income.
If you can make joint estimated tax payments, you can apply these rules on a
joint basis.

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

You and your spouse cannot make joint estimated tax payments if you are
separated under a decree of divorce or separate maintenance. Also, you cannot
make joint estimated tax payments if either spouse is a nonresident alien or
if you have different tax years.

Whether you and your spouse make joint estimated tax payments or separate
payments will not affect your choice of filing a joint tax return or separate
returns for 1993.

Change from 1992 separate returns to 1993 joint return. If you plan to file a
joint return with your spouse for 1993, but you filed separate returns for
1992, your 1992 tax is the total of the tax shown on your separate returns.

Change from 1992 joint return to 1993 separate return. If you plan to file a
separate return for 1993, but you filed a joint return with your spouse for
1992, your 1992 tax is your share of the tax on the joint return. To figure
your share, first figure the tax both you and your spouse would have paid had
you filed separate returns for 1992. Then multiply your joint tax liability by
the following fraction:

                         Your separate tax liability
                    --------------------------------------
                    Both spouses' separate tax liabilities

Example. Joe and Phyliss filed a joint return for 1992 showing taxable income
of $48,000 and a tax of $8,786. Of the $48,000 taxable income, $40,000 was
attributable to Phyliss. Joe figures his share of the tax on the joint return
as follows:


     Tax on $40,000 based on a separate return ............  $ 8,873
     Tax on $8,000 based on a separate return .............    1,200
                                                           __________
     Total.................................................  $10,073
     Joe's portion of total ($8,873 ÷ $10,073).............      88%
     Joe's share of joint return tax
        ($8,786 * 88%).....................................  $ 7,732
                                                           ==========

Aliens. The requirements for making estimated tax payments also apply to
resident and nonresident aliens. If you are a nonresident alien who must
make estimated tax payments, use Form 1040─ES(NR), U.S. Estimated Tax for
Nonresident Alien Individuals.

How to Figure Estimated Tax

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

When figuring your 1993 estimated tax, it may be helpful to use your income,
deductions, and credits for 1992 as a starting point. You must be careful to
make adjustments both for changes in your own situation and for recent changes
in the tax law. For 1993, there are several important changes in the law.
These changes are discussed under Important Changes for 1993 at the beginning
of this chapter.

Form 1040─ES includes a worksheet to help you figure your estimated tax. Keep
the worksheet for your records.

For additional information on how to figure your estimated tax for 1993, see
Chapter 2 of Publication 505.

Expected adjusted gross income. Include 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. Be sure to subtract all the adjustments to
income you expect to take on your 1993 tax return. These are the adjustments
shown on the 1992 Form 1040 that are included in the total on line 30. On the
1992 Form 1040A, these are the adjustments on lines 15a and 15b.

If your income will include income from self-employment, figure your
self-employment tax first and subtract half of it as an adjustment to
income. (See Expected taxes and credits, later.)

Expected taxable income. Reduce your expected adjusted gross income by either
your expected itemized deductions or your standard deduction and by a $2,300
deduction for each exemption. For information on the 1993 standard deduction
amounts and possible limited itemized deductions, see Publication 505 or the
instructions for Form 1040─ES.

Expected taxes and credits. After you have figured your expected taxable
income, figure your expected income tax. Use the 1993 Tax Rate Schedules near
the end of Publication 505 or in the Form 1040─ES instructions. For the
special method that must be used to figure tax on the income of a child under
14 who has more than $1,300 investment income ($1,200 for 1992), see Chapter
32.

Add your expected additional taxes from Form 4970, Tax on Accumulation
Distribution of Trusts, and Form 4972, Tax on Lump-Sum Distributions.
Subtract your expected credits. These are the credits shown on the 1992
Form 1040 that are included in the total on line 45. (Certain credits
included on line 44 expired June 30, 1992. See Proposed Changes for 1993,
at the beginning of this chapter.) On the 1992 Form 1040A, these are the
credits on lines 24a and 24b. If your credits are more than your taxes,
use "0" as the result.

Add your expected self-employment tax and other taxes. Other taxes are those
shown on lines 48, 49, and 51 of the 1992 Form 1040, plus advance earned
income credit payments on line 52 and any write-in amounts on line 53. On
the 1992 Form 1040A, include as "other tax" any advance earned income credit
payments on line 26.

Finally, subtract your expected earned income credit and fuel tax credit. The
result is your expected total tax for 1993.

Required annual payment. The total amount you must pay for 1993 through
withholding and estimated tax payments is figured on lines 14a through 14c of
the 1993 Estimated Tax Worksheet. It is the smaller of:

1)  90% of your total expected tax for 1993, or

2)  100% of the total tax shown on your 1992 return. (The return must cover
    all 12 months.) But see caution below.

Caution
-------
Beginning in 1992, certain taxpayers (other than farmers and fishermen) may
not be able to use 100% prior year's tax to figure their current year's
estimated tax payments. See limit on use of prior year's tax, later.

Your 1992 total tax on Form 1040 is the amount on line 53 reduced by the total
of the amounts on lines 50 and 56, any credit from Form 4136 included on line
59, any uncollected social security, Medicare, or railroad retirement tax
included on line 53, and any tax from Form 5329 (other than Part II) included
on line 51. On Form 1040A, it is line 27 reduced by line 28c. On Form 1040EZ,
it is line 7.

Limit on use of prior year's tax. Ordinarily, the amount of your prior year's
tax is used as your required annual payment if that amount is smaller than
90% of your current year's tax. However, if certain conditions apply to you,
your use of your prior year's tax as your required annaul payment is limited.
You are subject to this limit for 1993 if you are not a farmer or fishermen
(described later) and all of the following conditions apply to you.

1)  You made an estimated tax payment for at least one of the three preceding
    tax years or you were charged a penalty for any of those years. (Do not
    include withholding or a credit from your prior year's tax as a payment
    of estimated tax.)

2)  Your 1993 adjusted gross income (AGI) as shown on line 1 of your 1993
    Estimated Tax Worksheet will be more than $75,000 (more than $37,500
    if you are married filing separately).

3)  Your 1993 modified adjusted gross income (defined later) will exceed the
    amount of the AGI shown on your return for 1992 by more than $40,000
    (more than $20,000 if you are married filing separately).

To figure your expected modified adjusted gross income (modified AGI) make
the following adjustments to your expected 1993 AGI.

1)  Do not include any taxable gain from the sale or exchange of your main
    home.

2)  Do not include any taxable gain from a casualty, theft, condemnation, or
    other involuntary conversion.

3)  Do not include any 1993 income, gain, loss, or deduction from a partnership
    in which you are not a general partner and own less than a 10% capital or
    profits interest or from an S corporation in which you own less than 10%
    of the stock (by vote or value). Instead include the amounts (if any)
    from these partnerships and S corporations shown on your 1992 return. This
    adjustment does not apply to any gain or loss from the disposition of your
    interest in the partnership or S corporation.

4)  You may, but are not required to, use any or all of the adjustments
    in (1)-(3) above to figure any necessary changes to other income and
    adjustments to income that are affected by the amount of your AGI. For
    this purpose, all adjustments from the same partnership or S corporation
    must be treated in a like manner.

    For example, your 1993 expected AGI includes $20,000 income from a
    partnership described in (3) above, but your 1992 income from the
    partnership was $10,000. In figuring your modified AGI, you may include
    either $10,000 or $20,000 in your AGI for purposes of figuring your
    taxable social security benifits. If you include the $10,000 in your
    AGI for that purpose, you must also include $10,000 in your AGI for
    purposes of figuring the special allowance for your passive losses from
    rental real estate activities.

If you are subject to this limit, you can use your 1992 tax as your required
annual payment only if it is larger than 90% of your 1993 modified expected
tax.

Figure your 1993 modified expected tax in the same manner as you would figure
your total 1993 estimated tax (line 13c of the 1993 Estimated Tax Worksheet),
with the following exceptions:

1)  Start with your modified AGI instead of your AGI on line 1 of the 1993
    Estimated Tax Worksheet.

2)  Do not include any 1993 itemized deductions, credits, or items affecting
    other taxes (such as the alternative minimum tax) from a partnership
    in which you are not a general partner and own less than 10% capital or
    profits interest or from an S corporation in which you own less than
    10% of the stock (by vote or value). Instead, include the amount of these
    items (if any) shown on your 1992 return.

3)  You may, but are not required to, use any or all of the adjustments used
    to arrive at modified AGI to refigure all other items affected by the
    amount of your AGI (such as the deduction for medical and dental expenses
    and the rehabilitation credit). For this purpose, all adjustments from the
    same partnership or S corporation must be treated in a like manner.

    For example, your 1992 income from a partnership described in (2) above
    was $20,000. Your 1993 income from the partnership is expected to be
    $50,000. In figuring your 1993 modified expected tax, you may include
    either $20,000 or $50,000 in your AGI for purposes of figuring your
    medical and dental expenses, rehabilitation credit, and all other items
    affected by the amount of your AGI. You must treat each item that is
    affected by AGI and used either to figure modified AGI or to figure
    modified expected tax in the same manner. For example, if you refigure
    taxable social security benifits based on including $20,000 from the
    partnership in your AGI, you must also refigure your medical and dental
    expenses based on including that $20,000 in your AGI.

If 90% of your 1993 modified expected tax is larger than 1992 tax, your
required annual payment is the smaller of:

    90% of your 1993 total expected tax, or

    90% of your 1993 modified expected tax.

If you are subject to this limit, see Publication 505 for information on special
rules limiting use of prior year's tax under the regular installment method.

Example. Jeremy Martin's total tax on his 1992 return was $45,000, and 90%
of his expected tax for 1993 is $70,000. Jeremy paid estimated tax in 1992
and expects to pay estimated tax for 1993. His 1992 AGI was $180,000 which
included $25,000 from a partnership in which he is a 5% limited partner. He
expects his 1993 AGI to be $270,000 which includes $55,000 income from his
limited partnership.

Jeremy is subject to the limit on the use of his 1992 tax as his required
annual payment because he paid estimated tax in 1992, and his 1993 AGI will
be more than $75,000, and his $240,000 expected modified AGI for 1993
($270,000 - $55,000 + $25,000) exceeds his $180,000 1992 AGI by more than
$40,000.

90% of Jeremy's 1993 modified expected tax, figured using his $240,000
modified AGI, is $57,000. That amount his is required annual payment, because
it is more than $45,000 (his 1992 tax) and less than $70,000 (90% of his
1993 expected tax).


Farmers and fishermen. If at least two-thirds of your gross income for 1992 or
1993 is from farming or fishing, your required annual payment is the smaller
of:

1)  66-2/3% of your total tax for 1993, or

2)  100% of the total tax shown on your 1992 return. (The return must cover
    all 12 months.)

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

For definitions of "gross income from farming" and "gross income from
fishing," see Farmers and Fishermen under When to Pay Estimated Tax in
Chapter 2 of Publication 505.

Total estimated tax payments. The total amount you must pay for 1993 through
estimated tax payments is figured on lines 15 and 16 of the 1993 Estimated Tax
Worksheet by subtracting your expected withholding from your required annual
payment. This total usually must be paid in four equal installments. (See When
to Pay Estimated Tax and How to Figure Each Payment, later.)

However, you are not required to make estimated tax payments if your total
expected tax on line 13c, minus your expected withholding on line 15, is less
than $500.

Withholding. Your expected withholding for 1993 (line 15 of the 1993 Estimated
Tax Worksheet) includes the income tax you expect to be withheld from all
sources (wages, pensions and annuities, etc.). It also includes excess social
security, Medicare, and railroad retirement tax you expect to be withheld
from your wages.

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. The following
chart gives the payment periods and due dates.

        For the period:                      Due date:
        Jan. 1* through Mar. 31              April 15
        April 1 through May 31               June 15
        June 1 through Aug. 31               September 15
        Sept. 1 through Dec. 31              January 15 next year**

     *If your tax year does not begin on January 1, see Fiscal year taxpayers,
     later.
     **See January payment, next.

If the due date for making 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 legal holiday.

January payment. If you file your 1993 return by February 1, 1994, and pay
the rest of the tax you owe, you are not required to make your estimated tax
payment that would be due on January 15, 1994.

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 the 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 can pay all your estimated tax at that time, or
you can pay it in four installments, the first by the due date for the first
payment period and the remaining installments by the due dates for the later
periods.

If you first have income subject to estimated tax during 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. This is illustrated in the following chart:

      If you first have
      income on which
      you must pay             Make a          Make later
      estimated tax:           payment by:     installments by:
      --------------------    ------------    -----------------
      On or before
      March 31                 April 15        June 15
                                               September 15
                                               January 15
                                               next year*
      After March 31
        and
        before June 1          June 15         September 15
                                               January 15
                                               next year*
      After May 31
        and
        before Sept. 1         September 15    January 15
                                               next year*
      After August 31          January 15
                               next year*      (Not applicable)

     *See January payment, under When to Pay Estimated Tax, earlier.

After making your first estimated tax payment, changes in your income,
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.

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

Farmers and Fishermen

If you received at least two-thirds of your gross income for 1992 from farming
or fishing or you expect to receive at least two-thirds of your 1993 gross
income from farming or fishing, you have only one payment due date for your
1993 estimated tax - January 15, 1994. The due dates for the first three
payment periods, discussed under When to Pay Estimated Tax, earlier, do not
apply to you.

If you file your 1993 return by March 1, 1994, and pay all the tax you owe,
you are not required to pay estimated tax.

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:

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

2)  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.

For more information, see Farmers and Fishermen under When to Pay Estimated
Tax in Chapter 2 of Publication 505.

How to Figure Each Payment

You should pay enough estimated tax by the due date of each payment period to
avoid a penalty for that period. If you do not pay enough each 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 later under Underpayment Penalty.

Regular Installment Method

If you must pay estimated tax beginning with the payment due April 15,
1993, and your estimated tax does not change during the year, your required
estimated tax payment for each period is usually figured by dividing your
total estimated tax payments (line 16 of the 1993 Estimated Tax Worksheet) by
4. (Under certain circumstances, your required payment may be less. See
Annualized Income Installment Method, later.)

Amended estimated tax. If you refigure your estimated tax during the year, or
if your first estimated tax payment is due after April 15, 1993, figure your
required estimated tax payment for each remaining payment period using the
following worksheet.

     1. Amended total estimated tax payments        __________

     2. Multiply line 1 by:
            .50 if next payment is due
             June 15, 1993.
            .75 if next payment is due
             September 15, 1993.
            1.00 if next payment is due
             January 15, 1994......................    __________

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

     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...........................
                                                       ===========

     If the payment on line 4 is due January 15, 1994,
     stop here. Otherwise, go on to line 5.

     5. Add lines 3 and 4..........................    __________

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

     7. Each following required payment: If
        the payment on line 4 is due June 15,
        1993, enter one-half of the amount on
        line 6 here and on the payment-vouchers
        for your payments due September 15, 1993,
        and January 15, 1994. If the amount on
        line 4 is due September 15, 1993, enter
        the full amount on line 6 here and
        on the payment-voucher for your
        payment due January 15, 1994.......................
                                                       ==========

Example. Early in 1993, you figure your estimated tax is $1,800. You make
estimated tax payments on April 15 and June 15 of $450 each ($1,800 ÷ 4).

On July 16, you sell investment property at a gain. Your refigured estimated
tax is $3,600. Your required estimated tax payment for the third payment
period is $1,800, figured as follows.

     1. Amended total estimated tax payments             $3,600
                                                       __________

     2. Multiply line 1 by:
            .50 if next payment is due
             June 15, 1993.
            .75 if next payment is due
             September 15, 1993.
            1.00 if next payment is due
             January 15, 1994......................       2,700
                                                       __________

     3. Estimated tax payments for all previous
        periods....................................         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....................................      $1,800
                                                       ==========

     If the payment on line 4 is due January 15, 1994,
     stop here. Otherwise, go on to line 5.

     5. Add lines 3 and 4..........................       2,700
                                                       __________

     6. Subtract line 5 from line 1 and enter the
        result (but not less than zero)............         900
                                                       __________

     7. Each following required payment: If
        the payment on line 4 is due June 15,
        1993, enter one-half of the amount on
        line 6 here and on the payment-vouchers
        for your payments due September 15, 1993,
        and January 15, 1994. If the amount on
        line 4 is due September 15, 1993, enter
        the full amount on line 6 here and
        on the payment-voucher for your
        payment due January 15, 1994...............        $900
                                                       ==========

If your estimated tax does not change again, your required estimated tax
payment for the fourth payment period will be $900.

Note. If your estimated tax payment for a previous period is less than
one-fourth of your amended estimated tax, you may be charged a penalty for
underpayment of estimated tax for that period when you file your tax return.
To avoid the penalty, you must show that the total of your withholding and
estimated tax payment for the period was at least as much as your annualized
income installment. Complete Form 2210 and the Annualized Income Installment
Worksheet in its instructions, and attach the form and a copy of the worksheet
to your tax return. See Form 2210 under Underpayment Penalty, later, for more
information.

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 one-fourth of your estimated tax.

To see if you can pay less for any period, complete the 1993 Annualized
Estimated Tax Worksheets near the end of Publication 505.

Note. If you use the annualized income installment method, you must attach to
your tax return a completed Form 2210 and Annualized Income Installment
Worksheet. See Form 2210 under Underpayment Penalty, later.

Estimated Tax Payments Not Required

You do not have to make estimated tax payments if your withholding in each
payment period is at least one-fourth of your required annual payment or at
least your required annualized income installment for that period. You also
do not have to make estimated tax payments if you will pay enough through
withholding to keep the amount you owe with your 1993 return under $500.

How to Pay Estimated Tax

There are two ways to make estimated tax payments:

1)  By crediting an overpayment on your 1992 return to your 1993 estimated
    tax, and

2)  By sending in your payment with a payment-voucher from Form 1040─ES.

Crediting an Overpayment

If you had an overpayment on your Form 1040 or 1040A for 1992, you can apply
all of it, or any part of it, to your estimated tax for 1993. On line 63 of
Form 1040, or line 31 of Form 1040A, write the amount you want credited to
your estimated tax rather than refunded. The amount you have credited should
be taken into account when figuring your estimated tax payments. You can use
all the credited amount toward your first payment, or you can spread it out
in any way you choose among any or all of your payments.

Once you have asked that an overpayment be credited to your estimated tax for
the next year, you cannot have that amount refunded to you, nor can you use it
in any other way.

Using the Payment-Vouchers

Each payment of estimated tax must be accompanied by a payment-voucher from
Form 1040─ES. If you made estimated tax payments last year, you should receive
a copy of the 1993 Form 1040─ES in the mail. It will have payment-vouchers
preprinted with your name, address, and social security number. Using the
preprinted vouchers will speed processing, reduce the chance of error, and
help save processing costs.

If you did not pay estimated tax last year, you will have to get a copy of
Form 1040─ES from the IRS. After you make your first payment, a Form 1040─ES
package with preprinted vouchers will be mailed to you.

Use the addressed envelopes that came with your Form 1040─ES package, or mail
your payment-vouchers to the address shown in the Form 1040─ES instructions
for the place where you live. Do not use the address shown in the Form 1040
or Form 1040A instructions.

Credit for Withholding and Estimated Tax

When you file your 1992 income tax return, take credit for all the income tax
and excess social security, Medicare, or railroad retirement tax, withheld
from your salary, wages, pensions, etc. Also, take credit for the estimated
tax you paid for 1992. These credits are subtracted from your tax.

If you had two or more employers and were paid wages of more than $55,500
during 1992, too much social security, Medicare, or railroad retirement
tax may have been withheld from your wages. See Credit for Excess Social
Security, Medicare, or Railroad Retirement Tax Withheld in Chapter 36.

Withholding

If you had income tax withheld during 1992, you should receive a statement by
January 31, 1993, showing your income and the tax withheld. Depending on the
source of your income, you will receive:

       Form W─2, Wage and Tax Statement,

       Form W─2G, Certain Gambling Winnings, or

       A form in the 1099 series.

Forms W─2 and W─2G. These forms are filed with your income tax return. You
should get at least two copies of each form you receive. Attach one copy
to the front of your federal income tax return. The other copy is for your
records. Your employer may also give you copies to file with your state and
local returns.

Form W─2

Your employer should give you a Form W─2 for 1992 by January 31, 1993.
You should receive a separate form from each employer you worked for.

If you stop working before the end of the year, your employer can give you
your Form W─2 any time after you leave your job but no later than January 31
of the following year (or the next day that is not a Saturday, Sunday, or
holiday if January 31 is a Saturday, Sunday, or holiday). If you ask for the
form, your employer must give it to you within 30 days after receiving your
written request or by January 31 if this 30-day period ends after January 31.

If you have not received your Form W─2 by January 31, 1993, you should ask
your employer for it. If you do not receive it by February 15, call the IRS
toll-free telephone number for your area. The number is listed in the Form
1040, Form 1040A, and Form 1040EZ instructions. You will be asked to give
your employer's name and address and, if known, your employer's identification
number.

Form W─2 shows your total pay and other compensation and the income tax,
social security tax, and Medicare tax that was withheld during the year.
Take credit for the withheld income tax on:

       Line 54 if you file Form 1040,

       Line 28a if you file Form 1040A, or

       Line 6 if you file Form 1040EZ.

Form W─2 is also used to report any taxable sick pay you received and any
income tax withheld from your sick pay.

Form W─2G

If you had gambling winnings, 20% may have been withheld as income tax. If tax
was withheld, the person who paid you will give you a Form W─2G showing the
amount you won and the amount of tax withheld. Report the amounts you won on
line 22, Form 1040. Take credit for the tax withheld on line 54, Form 1040. If
you had gambling winnings, you must use Form 1040; you cannot use Form 1040A
or Form 1040EZ. See Deductions Not Subject to the 2% Limit in Chapter 30 for
information on how to deduct gambling losses.

The 1099 Series

Most forms in the 1099 series are not filed with your return. Keep these forms
for your records. There are several different forms in this series, including:

       Form 1099─DIV, Dividends and Distributions,

       Form 1099─G, Certain Government Payments,

       Form 1099─INT, Interest Income,

       Form 1099─MISC, Miscellaneous Income,

       Form 1099─R, Distributions From Pensions, Annuities, Retirement or
       Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,

       Form SSA─1099, Social Security Benefit Statement, and

       Form RRB─1099, Payments by the Railroad Retirement Board.

For some types of income reported on forms in the 1099 series, you may not be
able to use Form 1040A or Form 1040EZ. See the instructions to these forms for
details.

If you were subject to backup withholding on income you received during 1992,
include the amount withheld, as shown on your Form 1099, in the total on line
54, Form 1040, or line 28a, Form 1040A. Check the box next to this total.

Form Not Correct

If you receive a form with incorrect information on it, you should ask for
a corrected form. The corrected Form W─2G or Form 1099 you receive will be
marked "CORRECTED." A special form, Form W─2c, Statement of Corrected Income
and Tax Amounts, is used to correct a Form W─2.

Form Received After Filing

If, after you file your return, you receive a form for income that you did not
include on your return, you should report the income and take credit for any
income tax withheld by filing Form 1040X, Amended U.S. Individual Income Tax
Return. See Amended Returns and Claims for Refund in Chapter 1.

Separate Returns

If you are married, but file a separate return, you can take credit only for
the tax withheld from your own income. Do not include any amount withheld from
your spouse's income. However, different rules may apply if you live in a
community property state.

Community property states. If you live in Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, and file a
separate return, you and your spouse must each report half of all community
income in addition to your own separate income. Each of you takes credit
for half of all taxes withheld on the community income. If you were divorced
during the year, each of you generally must report half the community income
and can take credit for half the withholding on that community income for
the period before the divorce.

For more information on these rules, and some exceptions, see Publication 555,
Federal Tax Information on Community Property.

Fiscal Years

If you file your tax returns on the basis of a fiscal year (a 12-month period
ending on the last day of any month except December), you must follow special
rules to determine your credit for withheld income tax.

During your fiscal year, one calendar year will end and another will begin.
You can claim credit on your tax return only for the tax withheld during the
calendar year ending in your fiscal year. You cannot claim credit for any of
the tax withheld during the calendar year beginning in your fiscal year.

However, if income tax has been withheld from your income under the backup
withholding rule, take credit for it on your tax return for the fiscal year
in which you received the payment.

For a more detailed discussion of how to take credit for withholding on
a fiscal year return, see Fiscal Years under Withholding in Chapter 3 of
Publication 505.

Estimated Tax

Take credit for all your estimated tax payments for 1992 on line 55 of Form
1040 or line 28b of Form 1040A. Include any overpayment from 1991 that you had
credited to your 1992 estimated tax. You must use Form 1040 or Form 1040A if
you paid estimated tax. You cannot use Form 1040EZ.

Name changed. If you changed your name, and you made estimated tax payments
using your old name, attach a brief statement to the front of your tax return
indicating:

1)  When you made the payments,

2)  The amount of each payment,

3)  Which address you sent the payments to, and

4)  Your name when you made the payments and your social security number.

The statement should cover payments you made jointly with your spouse as well
as any you made separately.

Separate Returns

If you and your spouse made separate estimated tax payments for 1992 and you
file separate returns, you can take credit only for your own payments.

If you made joint estimated tax payments, you must decide how to divide the
payments between your returns. One of you can claim all of the estimated tax
paid and the other none, or you can divide it in any other way you agree on.
If you cannot agree, you must divide the payments in proportion to each
spouse's individual tax as shown on your separate returns for 1992.

Divorced Taxpayers

If you made joint estimated tax payments for 1992, and you were divorced
during the year, either you or your former spouse can claim all of the joint
payments, or you each can claim part of them. If you cannot agree on how
to divide the payments, you must divide them in proportion to each spouse's
individual tax as shown on your separate returns for 1992.

If you claim any of the joint payments on your tax return, enter your former
spouse's social security number in the space provided on the front of Form
1040 or Form 1040A. But if you remarried in 1992, enter your present spouse's
social security number in that space and write your former spouse's social
security number, followed by "DIV," to the left of line 55, Form 1040, or line
28b, Form 1040A.

Underpayment Penalty

If you did not pay enough tax either through withholding or by making
estimated tax payments, you will have an underpayment of estimated tax and
you may have to pay a penalty. However, you will not generally have to pay
a penalty for 1992 if any of the following situations applies to you.

∙   The total of your withholding and estimated tax payments was at least as
    much as your 1991 tax, and all required estimated tax payments were on
    time. This rule may not apply if your 1992 adjusted gross income is more
    than $75,000 (more than $37,500 if you are married filing separately).
    See publication 505 for more information.

∙   The tax balance on your return is no more than 10% of your total 1992
    tax, and all required estimated tax payments were on time.

∙   Your total 1992 tax minus your withholding is less than $500.

Special rules apply if you are a farmer or fisherman. See Farmers and
Fishermen in Chapter 4 of Publication 505 for more information.

IRS can figure the penalty for you. If you do not want to figure your penalty
and pay it when you file your tax return, you do not have to. The IRS will
figure it for you and send you a bill. However, in certain situations you
must complete Form 2210 or Form 2210F and file with your return.

General Rule

In general, you may owe a penalty for 1992 if you did not pay at least the
smaller of:

1)  90% of your 1992 tax, or

2)  100% of your 1991 tax. (Your 1991 return must cover a 12-month period.)
    But see note below.

Note. Beginning in 1992, certain taxpayers (other than farmers and fishermen)
may not be able to use 100% prior year's tax to avoid the penalty. See limit
on use of prior year's tax, under how to figure estimated tax, earlier.

The penalty is figured separately for each payment period, so you may owe a
penalty for an earlier payment period even if you later paid enough to make
up the underpayment. If you did not pay enough tax by the due date of each of
the payment periods, you may owe a penalty even if you are due a refund when
you file your income tax return.

Example. You did not make estimated tax payments during 1992 because you
thought you had enough tax withheld from your wages. Early in January 1993 you
made an estimate of your total 1992 tax and realized that your withholding
was $2,000 less than the amount needed to avoid a penalty for underpayment of
estimated tax.

On January 10 you made an estimated tax payment of $3,000, the difference
between your withholding and your estimate of your total tax. Your final
return shows your total tax to be $50 less than you originally figured,
so you are due a refund.

You do not owe a penalty for your payment due January 15, 1993, but you
will owe a penalty through January 10 for your underpayments for the earlier
payment periods.

Minimum required each period. You will owe a penalty for any 1992 payment
period for which your estimated tax payment plus your withholding for the
period and overpayments for previous periods was less than the smaller of:

1)  22.5% of your 1992 tax, or

2)  25% of your 1991 tax. (Your 1991 return must cover a 12-month period.)

Caution: If 25% of your 1991 tax is smaller, and your 1992 adjusted gross
income is more than $75,000 (more than $37,500 if you are married filing
separate), then see chapter 4 of Publication 505 for a special rule that may
apply to you.

Change from 1991 separate returns to 1992 joint return. If you file a joint
return with your spouse for 1992, but you filed separate returns for 1991,
your 1991 tax is the total of the tax shown on your separate returns.

Change from 1991 joint return to 1992 separate return. If you file a separate
return for 1992, but you filed a joint return with your spouse for 1991, your
1991 tax is your share of the tax on the joint return. To figure your share,
first figure the tax both you and your spouse would have paid had you filed
separate returns for 1991. Then multiply your joint tax liability by the
following fraction:

                      Your separate tax liability
                 --------------------------------------
                 Both spouses' separate tax liabilities

Example. Lisa and Chris filed a joint return for 1991 showing taxable income
of $48,000 and a tax of $9,027. Of the $48,000 taxable income, $40,000 was
attributable to Lisa and $8,000 was attributable to Chris. Lisa figures her
share of the tax on the joint return as follows:

     Tax on $40,000 based on a separate return          $ 8,997
     Tax on $8,000 based on a separate return             1,204
                                                       __________
     Total ..........................................   $10,201
     Lisa's portion of total ($8,997 ÷ $10,201)             88%
     Lisa's share of joint return tax
        ($9,027 * 88%)...............................   $ 7,944
                                                       ==========

Form 2210. If you want to figure your penalty, complete Part I, Part II, and
either Part III or Part IV of Form 2210, Underpayment of Estimated Tax by
Individuals and Fiduciaries. Do not file Form 2210 unless you are required to
file, as explained later under Reasons for filing. If you use Form 2210, you
cannot file Form 1040EZ.

On Form 1040, enter the amount of your penalty on line 65. If you owe tax on
line 64, add the penalty to your tax due and show your total payment on line
64. If you are due a refund, subtract the penalty from the overpayment you
show on line 61.

On Form 1040A, enter the amount of your penalty on line 33. If you owe tax on
line 32, add the penalty to your tax due and show your total payment on line
32. If you are due a refund, subtract the penalty from the overpayment you
show on line 29.

Reason for filing. You may be able to lower or eliminate your penalty if
you file Form 2210. You must file Form 2210 with your return if any of the
following applies.

1)  You claim a waiver. (See Waiver of Penalty, later.)

2)  You use the annualized income installment method.

3)  You use your actual withholding for each payment period.

4)  You base your required payments on the tax shown on your 1991 return and
    your filing status changed. (See Change from 1991 joint return to 1992
    separate return, earlier.)

For help in completing Form 2210, including illustrated examples, see Chapter
4 of Publication 505.

Annualized income installment method. If you did not receive your income
evenly throughout the year (for example, your income from a repair shop you
operated was much larger in the summer than it was during the rest of the
year), you may be able to lower or eliminate your penalty by figuring your
underpayment using the annualized income installment method. Under this
method, your required installment for one or more payment periods may be
less than one-fourth of your required annual payment.

To figure your underpayment using this method, complete the Annualized Income
Installment Worksheet in the Form 2210 instructions and check the box on line
1b in Part I of Form 2210. You must file the form and the worksheet with your
return.

Actual withholding method. Instead of using one-fourth of your withholding
to figure your payments, you can choose to establish how much was actually
withheld on or before the due dates and use those amounts. You can make this
choice separately for the tax withheld from your wages and for all other
withholding.

Using your actual withholding may result in a smaller penalty if most of your
withholding occurred early in the year.

If you use your actual withholding, you must check the box on line 1c, Part
I of the Form 2210. Complete Form 2210 and file it with your return.

Short method for figuring the penalty. You may be able to use the short method
in Part III of Form 2210 to figure your penalty for underpayment of estimated
tax. If you qualify to use this method, it will result in the same penalty
amount as the regular method, but with fewer computations.

You can use the short method only if you meet one of the following
requirements.

1)  You made no estimated tax payments for 1992. It does not matter whether
    you had income tax withholding.

2)  You paid estimated tax on all four due dates in equal installments.
    You must have paid the same amount on each of the following dates:

            April 15, 1992,

            June 15, 1992,

            September 15 1992, and

            January 15, 1993.

If you do not meet either requirement, figure your penalty using the regular
method in Part IV, Form 2210.

Note. If you use the short method in Part III, you cannot use the annualized
income installment method or the actual withholding method.

Form 2210F. If you received at least two-thirds of your 1991 or 1992 income
from farming or fishing, you can figure your penalty using special rules on
Form 2210F, Underpayment of Estimated Tax by Farmers and Fishermen. See
Farmers and Fishermen in Chapter 4 of Publication 505 for more information.
Do not file Form 2210F unless you are required to file, as explained next.

Reasons for filing. You may be able to lower or eliminate your penalty if
you file Form 2210F. You must file Form 2210F with your return if any of
the following applies.

1)  You claim a waiver. (See Waiver of Penalty, later.)

2)  You base your required payments on the tax shown on your 1991 return and
    your filing status changes.

Exceptions

You do not have to fill out Form 2210 or Form 2210F or pay any penalty if
either of the following conditions applies.

Less Than $500 Due

You do not owe a penalty if the total tax shown on your return minus the
amount you paid through withholding (including excess social security,
Medicare, and railroad retirement tax withholding) is less than $500.

Total tax for 1992. For 1992, your total tax on Form 1040 is the amount on
line 53 reduced by the total of the amounts on lines 50, 56, and 59, any
uncollected social security, Medicare, or railroad retirement tax included on
line 53, and any tax on an IRA or a qualified retirement plan from Form 5329
(other than Part II) included on line 51.

Your total tax on Form 1040A is the amount on line 27 minus the amount on line
28c. Your total tax on Form 1040EZ is the amount on line 7.

Waiver of Penalty

The penalty for underpayment can be waived by the IRS if either:

1)  You did not make a payment because of a casualty, disaster, or other
    unusual circumstance, and it would be inequitable to impose the penalty,
    or

2)  You retired (after reaching age 62) or became disabled during the tax
    year a payment was due or during the preceding tax year, and both the
    following requirements are met:

    a)  You had reasonable cause for not making the payment, and

    b)  Your underpayment was not due to willful neglect.

To claim either waiver, follow the procedures explained in the instructions
for Form 2210 or Form 2210F.