Often times, taxpayers choose1 to estimate, or prepay, their federal income tax liability during the tax year (as opposed to withholding or paying entirely at year’s end). In doing so, a taxpayer may make monthly or quarterly installment payments to the IRS to satisfy his/her impending tax liability. At year’s end, taxpayers utilizing the prepayment method use Line 63 of Form 1040 to inform the IRS of any such payments. Line 63 is also the place to apply any refund(s) from past tax returns, including those stemming from an overpayment. Any value legitimately listed on Line 63 will credited against the taxpayer’s bottom line tax liability.
Prepaying Spouses: Spouses that made joint estimated tax payments but later decide to file separate income tax returns may divide the amount paid any way they prefer (as long as both agree). In the event the spouses cannot agree, the payments must be divided in proportion to each spouse’s individual tax as shown on their separate returns. For more information, please consult Publication 505. Conversely, spouses that made separate estimated tax payments but subsequently decide to file jointly should simply combine the total amounts paid.
How to Prepay: The IRS offers taxpayers two ways to prepay: (1) the Electronic Federal Tax Payment System, which lets taxpayers make estimated tax payments online, or (2) sending vouchers for estimated tax along with payment to an appropriate IRS office (see Form 1040-ES).
1While any taxpayer may elect to prepay their income taxes, certain other taxpayers are strongly encourage or must prepay federal income taxes. This includes self-employed taxpayers and taxpayers carrying over tax liability from the previous year.
Photo by: Nick Hartounian