us internal revenue service: p505--1998

8/14/2019 US Internal Revenue Service: p505--1998

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ContentsIntroduction ........................................ 1

Important Changes for 1998 ............. 2

Important Changes for 1999 ............. 2

Chapter

1. Tax Withholding for 1999 ........... 3Salaries and Wages ....................... 3

Tips ................................................. 11Taxable Fringe Benefits .................. 11Sick Pay .......................................... 13Pensions and Annuities .................. 13Gambling Winnings ......................... 14Unemployment Compensation ....... 14Federal Payments ........................... 15Backup Withholding ........................ 15

2. Estimated Tax for 1999 ............... 16Who Must Make Estimated Tax

Payments? ............................... 16How To Figure Estimated Tax ........ 171999 Estimated Tax Worksheet ..... 19When To Pay Estimated Tax ......... 21How To Figure Each Payment ....... 22

1999 Annualized Estimated TaxWorksheet ................................ 24

How To Pay Estimated Tax ............ 26Illustrated Examples ....................... 261999 Standard Deduction Tables ... 311999 Tax Rate Schedules .............. 32

3. Credit for Withholding andEstimated Tax for 1998 ............... 33

Withholding ..................................... 33Estimated Tax ................................. 34Excess Social Security or Railroad

Retirement Tax Withholding .... 34

4. Underpayment Penalty for 1998 36

General Rule ................................... 36

Exceptions ...................................... 37Figuring Your Required AnnualPayment ................................... 37

Short Method for Figuring thePenalty ..................................... 37

Regular Method for Figuring thePenalty ..................................... 38

Farmers and Fishermen ................. 41Waiver of Penalty ........................... 41

5. How To Get More Information .. 47

Index .................................................... 48

IntroductionThe federal income tax is a pay-as-you-gotax. You must pay the tax as you earn or re-ceive income during the year. There are twoways to pay as you go.

Withholding. If you are an employee,your employer probably withholds incometax from your pay. Tax may also bewithheld from certain other income in-cluding pensions, bonuses, commissions,and gambling winnings. In each case, theamount withheld is paid to the InternalRevenue Service (IRS) in your name.

Estimated tax. If you do not pay your taxthrough withholding, or do not payenough tax that way, you might have to

Departmentof theTreasury

InternalRevenueService

Publication 505(Rev. November 1998)Cat. No. 15008E

Tax

Withholdingand Est imatedTax


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pay estimated tax. People who are inbusiness for themselves generally willhave to pay their tax this way. You mayhave to pay estimated tax if you receiveincome such as dividends, interest, capi-tal gains, rents, and royalties. Estimatedtax is used to pay not only income tax,but self-employment tax and alternativeminimum tax as well.

This publication explains both of these meth-ods. It also explains how to take credit onyour 1998 return for the tax that was withheld

and for your estimated tax payments.If you did not pay enough tax during the

year either through withholding or by makingestimated tax payments, you may have to paya penalty. The IRS usually can figure thispenalty for you. This underpayment penalty,and the exceptions to it, are discussed inchapter 4.

Important Changesfor 1998You should consider the items in this sectionwhen figuring any underpayment penalty for

1998. Figuring the penalty is discussed inchapter 4.

Penalty due to new law waived. For esti-mated tax payments due before August 22,1998, you will not have to pay a penalty forfailure to pay estimated income tax to theextent your underpayment was created or in-creased by a provision of the Internal Reve-nue Service Restructuring and Reform Act of1998.

Excess social security or railroad retire-ment tax withholding. You will have excesssocial security or tier 1 railroad retirement taxwithholding for 1998 only if your wages fromtwo or more employers were more than

$68,400. See Excess Social Security or Rail-road Retirement Tax Withholding in chapter3.

Penalty rate. The penalty for underpaymentof 1998 estimated tax is figured at an annualrate of 8% for the number of days the under-payment remained unpaid from April 16,1998, through December 31, 1998, and at arate of 7% from January 1, 1999, throughApril 15, 1999.

Who must pay estimated tax. You will notbe liable for the penalty for failure to pay es-timated income tax if the total tax shown onyour return minus the amount you paid

through withholding (including excess socialsecurity and railroad retirement tax withhold-ing) is less than $1,000.

Interest netting. For periods beginning afterJuly 22, 1998, if for the same period of timethat you owe interest to the IRS on anunderpayment, the IRS owes you interest onan overpayment, you will be charged intereston the amount of the underpayment up to theamount of the overpayment at the overpay-ment interest rate.

For periods beginning before July 22,1998, the same rules apply if you reasonablyidentify and show periods during whichunderpayment and overpayment amounts areequal, and you request interest netting nolater than December 31, 1999. This is subjectto any applicable statute of limitation nothaving expired on either a tax underpaymentor a tax overpayment. To make this request,file Form 843, Claim for Refund and Requestfor Abatement.

Elimination of 18-month holding period forlowest gains rates. The 18-month holdingperiod for eligibility for the lowest capital gainsrates has been eliminated for tax years end-ing after 1997. Now, most property held more

than one year will be eligible for the 10% or20% tax rate.

Employment taxes on household employ-ees. If you are otherwise subject to taxwithholding or estimated tax, you must in-clude any expected employment (social se-curity, Medicare, and federal unemployment)taxes for household employees in your with-holding or estimated tax.

Important Changesfor 1999

You should consider the items in this sectionwhen you figure your estimated tax or howmuch income tax you want withheld from yourpay for 1999. For more information on theseand other tax changes, see Publication 553,Highlights of 1998 Tax Changes.

Child tax credit. You may be able to take a$500 credit for each of your dependent chil-dren under age 17.

Student loan interest deduction. You maybe able to deduct up to $1,500 of the interestyou pay on a loan for qualified higher educa-tion expenses for yourself, your spouse, oryour dependents.

Self-employed health insurance de-duction. The part of your self-employedhealth insurance premiums you can deductas an adjustment to income increases to 60%for 1999.

Foreign earned income exclusion. Theamount of foreign earned income that youmay be able to exclude increases to $74,000for 1999.

Exemption amount increased. For 1999,the amount you can deduct for each ex-

emption increases to $2,750.

Phaseout of exemptions. Your deduction forexemptions is reduced by 2% for each $2,500($1,250 if you are married filing separately),or part of that amount, by which your adjustedgross income is more than an amount basedon your filing status. The amounts for 1999are:

Standard deduction. Individuals who do notitemize deductions have an increased stand-

ard deduction for 1999. See the 1999 Stand-ard Deduction Tables at the end of chapter2.

Reduction of itemized deductions. For1999, certain itemized deductions are re-duced by 3% of the amount of your adjustedgross income that is more than $126,600($63,300 if you are married filing separately).For information on the reduction, see Re-duction of itemized deductionsin chapter 2.

Self-employment tax. For 1999, the socialsecurity (old-age, survivor, and disability in-surance) part of the self-employment tax is12.4% of up to $72,600 of net earnings. TheMedicare (hospital insurance) part of the taxis 2.9% of all net earnings.

Maximum section 179 deduction. For1999, the maximum section 179 deductionincreases to $19,000.

Estimated tax safe harbor for higher in-come individuals. For installment paymentsfor tax years beginning in 1999, the estimatedtax safe harbor for higher income individuals(other than farmers and fishermen) has beenmodified. If your adjusted gross income ismore than $150,000 ($75,000 if married filinga separate return), you will have to depositthe smaller of 90% of your expected tax for1999 or 105% of the tax shown on your 1998return to avoid an estimated tax penalty.

Single ........................................ $126,600Married filing jointlyor qualifying widow(er) .............. $189,950Married filing separately ........... $94,975Head of household ................... $158,300

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1.

Ta x Withholdingfor 1999

Important RemindersUnemployment compensation. You canchoose to have income tax withheld from anyunemployment compensation you get. SeeUnemployment Compensation, later in thischapter, for more information.

Federal payments. You can choose to haveincome tax withheld from certain federal pay-ments you get. These payments include tier1 railroad retirement benefits. For more infor-mation, see Federal Payments, later in thischapter.

IntroductionThis chapter discusses withholding on thesetypes of income:

Salaries and wages,

Tips,

Taxable fringe benefits,

Sick pay,

Pensions and annuities,

Gambling winnings,

Unemployment compensation, and

Federal payments.

This chapter explains in detail the rules forwithholding tax from each of these types ofincome. The discussion of salaries and wagesincludes an explanation of how to completea Form W-4.

This chapter also covers backup with-holding on interest, dividends, and otherpayments.

Useful ItemsYou may want to see:

Publication

525 Taxable and Nontaxable Income

919 Is My Withholding Correct for

1999?

Form (and Instructions)

W-4 Employee's Withholding Allow-ance Certificate

W-4P Withholding Certificate for Pen-sion or Annuity Payments

W-4S Request for Federal Income TaxWithholding From Sick Pay

W-4V Voluntary Withholding Request

See chapter 5 of this publication for infor-mation about getting these publications andforms.

Salaries and WagesIncome tax is withheld from the pay of mostemployees. Your pay includes bonuses,commissions, and vacation allowances, inaddition to your regular pay. It also includesreimbursements and other expense allow-ances paid under a nonaccountable plan. SeeSupplemental Wages, later.

Military retirees. Military retirement pay is

treated in the same manner as regular pay forincome tax withholding purposes, eventhough it is treated as a pension or annuity forother tax purposes.

Household workers. If you are a householdworker, you can ask your employer to with-hold income tax from your pay. Tax is with-held only if you want it withheld and youremployer agrees to withhold it. If you do nothave enough income tax withheld, you mayhave to make estimated tax payments, asdiscussed in chapter 2.

Farmworkers. Income tax is generally with-held from your cash wages for work on a farmunless your employer both:

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

2) Has expenditures for agricultural labortotaling less than $2,500 during the year.

If you receive either cash wages not sub-ject to withholding or noncash wages, you canask your employer to withhold income tax. Ifyour employer does not agree to withhold tax,or if not enough is withheld, you may have tomake estimated tax payments, as discussedin chapter 2.

Determining Amountof Tax WithheldThe amount of income tax your employerwithholds from your regular pay depends ontwo things.

1) The amount you earn.

2) The information you give your employeron Form W-4.

Form W-4 includes three types of infor-mation that your employer will use to figureyour withholding.

1) Whether to withhold at the single rate orat the lower married rate.

2) How many withholding allowances youclaim (each allowance reduces theamount withheld).

3) Whether you want an additional amountwithheld.

If your income is low enough that you willnot have to pay income tax for the year, youmay be exempt from withholding. See Ex-emption From Withholding, later.

Note. You must specify a filing status anda number of withholding allowances on FormW-4. You cannot specify only a dollar amountof withholding.

New job. When you start a new job, youmust fill out a Form W-4 and give it to youremployer. Your employer should have copies

of the form. If you later need to change theinformation you gave, you must fill out a newform.

If you work only part of the year (for ex-ample, you start working after the beginningof the year), too much tax may be withheld.You may be able to avoid overwithholding ifyour employer agrees to use the part-yearmethod, explained later.

Changing your withholding. Events duringthe year may change your marital status or

the exemptions, adjustments, deductions, orcredits you expect to claim on your return.When this happens, you may need to giveyour employer a new Form W-4 to changeyour withholding status or number of allow-ances.

You mustgive your employer a new FormW-4 within 10 days after either of the follow-ing.

1) Your divorce, if you have been claimingmarried status.

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

Events that decrease the number of with-holding allowances you can claim include thefollowing.

1) You have been claiming an allowancefor your spouse, but you get divorced oryour spouse begins claiming his or herown allowance on a separate Form W-4.

2) You have been claiming an allowancefor a dependent, but you no longer ex-pect to provide more than half the de-pendent's support for the year.

3) You have been claiming an allowancefor your child, but you now find that heor she will earn more than $2,750 duringthe year. In addition, he or she will be:

a) 24 or older by the end of the year,or

b) 19 or older by the end of the yearand will not qualify as a student.

4) You have been claiming allowances foryour expected deductions, but you nowfind that they will be less than you ex-pected.

Generally, you can submit a new FormW-4 at any time you wish to change thenumber of your withholding allowances forany other reason.

If you change the number of your with-holding allowances, you can request that youremployer withhold using the cumulative wagemethod, explained later.

Changing your withholding for 2000.If events in 1999 will decrease the numberof your withholding allowances for 2000, youmust give your employer a new Form W-4 byDecember 1, 1999. If an event occurs in De-cember 1999, submit a new Form W-4 within10 days. Events that decrease the numberof your allowances for 2000 include the fol-lowing.

You claimed allowances for 1999 basedon child care expenses, moving ex-penses, or large medical expenses, butyou will not have these expenses in 2000.

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You have been claiming an allowance foryour spouse, but he or she died in 1999.Because you can still file a joint return for1999, this will not affect the number ofyour withholding allowances until 2000.You will also have to change from mar-ried to single status for 2000, unless youcan file as a qualifying widow or widowerbecause you have a dependent child, oryou remarry. You must file a new FormW-4 showing single status by December1 of the last year you are eligible to fileas qualifying widow or widower.

Part-year method. If you work only part ofthe year and your employer agrees to use thepart-year withholding method, less tax will bewithheld from each wage payment than wouldbe withheld if you worked all year. To be eli-gible for the part-year method, you must meetboth the following requirements.

1) You must use the calendar year (the12 months from January 1 through De-cember 31) as your tax year. You cannotuse a fiscal year.

2) You must not expect to be employedfor more than 245 days during theyear. To figure this limit, count all cal-

endar days that you are employed, in-cluding weekends, vacations, and sickdays, beginning the first day you are onthe job for pay and ending your last dayof work. If you are temporarily laid off for30 days or less, count those days too.If you are laid off for more than 30 days,do not count those days. You will notmeet this requirement if you beginworking before May 1 and expect to workfor the rest of the year.

How to apply for the part-year method.You must ask in writing that your employeruse this method. The request must state allthree of the following.

1) The date of your last day of work for anyprior employer during the current calen-dar year.

2) That you do not expect to be employedmore than 245 days during the currentcalendar year.

3) That you use the calendar year as yourtax year.

Cumulative wage method. If you change thenumber of your withholding allowances duringthe year, too much or too little tax may havebeen withheld for the period before you madethe change. You may be able to compensatefor this if your employer agrees to use thecumulative wage withholding method for the

rest of the year. You must ask in writing thatyour employer use this method.

To be eligible, you must have been paidfor the same kind of payroll period (weekly,biweekly, etc.) since the beginning of theyear.

Checking your withholding. After you havegiven your employer a Form W-4, you cancheck to see whether the amount of taxwithheld from your pay is too little or toomuch. See Getting the Right Amount of TaxWithheld, later. If too much or too little tax isbeing withheld, you should give your em-ployer a new Form W-4 to change your with-holding.

Note. You cannot give your employer apayment to cover withholding for past payperiods. Nor can you give your employer apayment for estimated tax.

Completing Form W-4and WorksheetsThe discussion that follows explains in detailhow to fill out Form W-4. It has more detailedinformation about some topics than the Form

W-4 instructions.In reading this discussion, you may find ithelpful to refer to the filled-in Form W-4 inExample 1.3, later in this chapter.

Marital Status(Line 3 of Form W-4)There is a lower withholding rate for marriedpeople who can use the tax rates for joint re-turns. Everyone else must have tax withheldat the higher single rate. (Also, see Gettingthe Right Amount of Tax Withheld, later.)

You must claim single status if either ofthe following applies.

1) You are single. If you are divorced, orseparated from your spouse under acourt decree of separate maintenance,you are considered single.

2) You are married, but you are neithera citizen nor a resident of the UnitedStates, or your spouse is neither a citi-zen nor a resident of the United States.However, if one of you is a citizen or aresident, you can choose to have theother treated as a resident. You can thenfile a joint return and claim married sta-tus on your Form W-4. See NonresidentSpouse Treated as a Residentin chapter1 of Publication 519, U.S. Tax Guide forAliens, for more information.

You can claim marriedstatus if either ofthe following applies.

1) You are married and neither you noryour spouse is a nonresident alien.You are considered married for thewhole year even if your spouse diedduring the year.

2) You expect to be able to file your re-turn as a qualifying widow orwidower. You usually can use this filingstatus if your spouse died within theprevious 2 years and you provide ahome for your dependent child. How-ever, you must file a new Form W-4showing your filing status as single by

December 1 of the last year you are eli-gible to file as a qualifying widow orwidower. For more information, seeQualifying Widow(er) With DependentChildunder Filing Statusin Publication501, Exemptions, Standard Deduction,and Filing Information.

Some married people find that they do nothave enough tax withheld at the married rate.This can happen, for example, when bothspouses work. To avoid this, you can chooseto have tax withheld at the higher single rate(even if you qualify for the married rate). Also,you can fill out the Two-Earner/Two-JobWorksheet, explained later.

Withholding Allowances(Line 5 of Form W-4)The more allowances you claim on Form W-4,the less income tax your employer will with-hold. You will have the most tax withheld ifyou claim 0 allowances. The number of al-lowances you can claim depends on the fol-lowing factors.

How many exemptions you can take onyour tax return.

Whether you have income from morethan one job.

What deductions, adjustments to income,and credits you expect to have for theyear.

Whether you will file as head of house-hold.

If you are married, it also depends on whetheryour spouse also works and claims any al-lowances on his or her own Form W-4. If youboth work, you should figure your combinedallowances on one Form W-4 worksheet.You then should divide the allowances amongthe Forms W-4 you each file with every em-ployer. See Two jobs, later.

Form W-4 worksheets. Form W-4 hasworksheets to help you figure how manywithholding allowances you can claim. Theworksheets are for your own records. Do notgive them to your employer.

Complete only one set of Form W-4worksheets, no matter how many jobs youhave. If you are married and will file a jointreturn, complete only one set of worksheetsfor you and your spouse, even if you bothearn wages and must each give a Form W-4to your employer. Complete separate sets ofworksheets only if you and your spouse willfile separate returns.

If you are not exempt from withholding(see Exemption From Withholding, later),complete the Personal Allowances Worksheet

on page 1 of the form. You should also usethe worksheets on page 2 of the form to adjust the number of your withholding allow-ances for itemized deductions and adjust-ments to income, and for two-earner ortwo-job situations. If you want to adjust thenumber of your withholding allowances forcertain tax credits, use the Deductions andAdjustments Worksheeton page 2 of the formeven if you do not have any deductions oradjustments.

For accuracy, complete all worksheetsthat apply to your situation. The worksheetswill help you figure the maximum number ofwithholding allowances you are entitled toclaim so that the amount of income tax with-held from your wages will match, as closelyas possible, the amount of income tax youwill owe at the end of the year.

Alternative method of figuring withholdingallowances. You can take into account mostitems of income, adjustments to income, de-ductions, and tax credits in figuring the num-ber of your withholding allowances. Becausethe Form W-4 worksheets use a simplifiedmethod to take these items into account, theydo not always result in withholding that is ex-actly equal to the tax you will owe. You donot have to use the worksheets if you use amore accurate method of figuring the numberof withholding allowances.

The method you use must be based onwithholding schedules, the tax rate sched-

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ules, and the worksheet for Form 1040-ES,Estimated Tax for Individuals. (See How ToFigure Estimated Tax in chapter 2.) It musttake into account only the items of income,adjustments to income, deductions, and taxcredits that are taken into account on FormW-4.

You can use the number of withholdingallowances determined under this alternativemethod rather than the number determinedusing the Form W-4 worksheets. You muststill give your employer a Form W-4 claimingyour withholding allowances.

Two jobs. If you have income from two jobsat the same time, complete only one set ofForm W-4 worksheets. Then split your allow-ances between the Forms W-4 for each job.You cannot claim the same allowances withmore than one employer at the same time.You can claim all your allowances with oneemployer and none with the other, or dividethem in any other way you wish.

Married individuals. If both you and yourspouse are employed and you expect to filea joint return, figure your withholding allow-ances using your combined income, adjust-ments, deductions, exemptions, and credits.Use only one set of worksheets. You can di-vide your total allowances in any way you

wish, but you cannot claim an allowance thatyour spouse also claims.

If you and your spouse expect to file sep-arate returns, figure your allowances sepa-rately based on your own individual income,adjustments, deductions, exemptions, andcredits.

Employees who are not citizens or resi-dents. If you are neither a citizen nor a res-ident of the United States, you usually canclaim only one withholding allowance. Thisrule does not apply if you are a resident ofCanada or Mexico, or if you are a U.S. na-tional. It also does not apply if your spouse isa U.S. citizen or resident and you have cho-sen to be treated as a resident of the United

States. Special rules apply to residents ofKorea, Japan and India. For more informa-tion, see Withholding from Compensation inchapter 8 of Publication 519.

Personal Allowances WorksheetUse the Personal Allowances Worksheet onpage 1 of Form W-4 to figure your withholdingallowances for all of the following that apply.

Exemptions.

Only one job.

Head of household status.

Child and dependent care credit.

Child tax credit.

Exemptions (worksheet lines A, C, and D).You can claim one withholding allowance foreach exemption you expect to claim on yourtax return.

Self. You can claim an allowance for yourexemption on line A unless you can beclaimed as a dependent on another person'stax return. If another person is entitled toclaim you as a dependent, you cannot claiman allowance for your exemption even if theother person will not claim your exemption orthe exemption will be reduced or eliminatedunder the phaseout rule.

Spouse. You can claim an allowance foryour spouse's exemption on line C unlessyour spouse can be claimed as a dependent

on another person's tax return. But do notclaim this allowance if you and your spouseexpect to file separate returns.

Dependents. You can claim one allow-ance on line D for each exemption you willclaim for a dependent on your tax return.

Phaseout. For 1999, your deduction forpersonal exemptions is phased out if youradjusted gross income (AGI) falls within thefollowing brackets.

If you expect your AGI to be morethan the highest amount in the abovebracket for your filing status, enter

0 on lines A, C, and D. If your AGI will fallwithin the bracket, use the following work-sheet to figure the total allowances for thoselines.

Only one job (worksheet line B). You canclaim an additional withholding allowance ifany of the following apply.

You are single, and you have only onejob at a time.

You are married, you have only one jobat a time, and your spouse does not work.

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

If you qualify for this allowance, enter 1 online B of the worksheet.

Head of household (worksheet line E). Youcan file as head of household on your tax re-turn if you are unmarried and pay more thanhalf the cost of keeping up a home for your-self and your dependent or other qualifyingindividual. For more information, see Headof Householdunder Filing Status in Publica-tion 501.

If you expect to file as head of householdon your 1999 tax return, enter 1 on line Eof the worksheet.

Child and dependent care credit (work-sheet line F). Enter 1 on line F if you expectto have at least $1,500 of qualifying child or

dependent care expenses that you plan toclaim a credit for on your 1999 return. Gen-erally, qualifying expenses are those you payfor the care of your dependent who is underage 13 or for your spouse or dependent whois not able to care for himself or herself so thatyou can work or look for work. For more in-formation, get Publication 503, Child and De-pendent Care Expenses.

Instead of using line F, you can choose totake the credit into account on line 5 of theDeductions and Adjustments Worksheet, asexplained later under Tax credits.

Child tax credit (worksheet line G). If yourtotal income will be between $20,000 and$50,000 ($23,000 and $63,000 if married),enter 1 on line G for each eligible child. Ifyour total income will be between $50,000and $80,000 ($63,000 and $115,000 if mar-ried), enter 1 on line G if you have two eli-gible children, enter 2 if you have three orfour eligible children, or enter 3 if you havefive or more eligible children.

Instead of using line G, you can chooseto take the credit into account on line 5 of theDeductions and Adjustments Worksheet, asexplained later under Tax credits.

Total personal allowances (worksheet lineH). Add lines A through G and enter the totalon line H. If you do not adjust the number ofyour withholding allowances for itemized de-ductions or adjustments to income, or fortwo-earner or two-job situations, enter thenumber from line H on line 5 of Form W-4.

Deductions andAdjustments WorksheetFill out this worksheet to adjust the numberof your withholding allowances for de-ductions, adjustments to income, and taxcredits. Use the amount of each item you canreasonably expect to show on your 1999 re-turn. However, do not use more than:

1) The amount shown for that item on your1998 return (or your 1997 return if youhave not yet filed your 1998 return), plus

2) Any additional amount related to atransaction or occurrence (such as thesigning of an agreement or the sale ofproperty) that you can prove has hap-pened or will happen during 1998 or1999.

Do not include any amount shown on yourlast tax return if that amount has been disal-lowed by the IRS.

Example 1.1. On June 30, 1998, you

bought your first home. On your 1998 tax re-turn you claimed itemized deductions of$6,600, the total mortgage interest and realestate tax you paid during the 6 months youowned your home. Based on your mortgagepayment schedule and your real estate taxassessment, you can reasonably expect toclaim deductions of $13,200 for those itemson your 1999 return. You can use $13,200 tofigure the number of your withholding allow-ances for itemized deductions.

Not itemizing deductions. If you expect toclaim the standard deduction on your tax re-turn, skip lines 1 and 2, and enter 0 on line3 of the worksheet.

Table 1.1

Single .................................. $126,600 $249,100Married filing jointlyor qualifying widow(er) ........ $189,950 $312,450Married filing separately ..... $94,975 $156,225Head of household ............. $158,300 $280,800

Worksheet 1.1

1. Enter your expected AGI ....................2. Enter:

$126,600 if single$189,950 if married filing jointlyor qualifying widow(er)$94,975 if married filing separately$158,300 if head of household .......

3. Subtract line 2 from line 1 ...................4. Divide the amount on line 3 by

$125,000 ($62,500 if married filingseparately). Enter the result as a deci-mal .......................................................

5. Enter the number of allowances onlines A, C, and D of the Personal Al-lowances Worksheet without regard tothe phaseout rule . ................. ..............

6. Multiply line 4 by line 5. If the result isnot a whole number, increase it to thenext higher whole number .. ................

7. Subtract line 6 from line 5. This is themaximum number you should enter onlines A, C, and D of the Personal Al-

lowances Worksheet ...........................



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Itemized deductions (worksheet line 1).You can take the following deductions intoaccount when figuring additional withholdingallowances for 1999. You normally claimthese deductions on Schedule A of Form1040.

1) Medical and dental expenses that aremore than 7.5% of your 1999 adjustedgross income (defined later).

2) State and local income taxes and prop-erty taxes.

3) Deductible home mortgage interest.

4) Investment interest up to net investmentincome.

5) Charitable contributions.

6) Casualty and theft losses that are morethan 10% of your 1999 adjusted grossincome.

7) Fully deductible miscellaneous de-ductions, including:

a) Impairment-related work expensesof persons with disabilities,

b) Federal estate tax on income in re-spect of a decedent,

c) Repayment of more than $3,000 ofincome held under a claim of right(that you included in income in anearlier year because at the time youthought you had an unrestrictedright to it),

d) Unrecovered investments in an an-nuity contract under which pay-ments have ceased because of theannuitant's death, and

e) Gambling losses (up to the amountof gambling winnings reported onyour return), and,

f) Casualty and theft losses fromincome-producing property.

8) Other miscellaneous deductions that aremore than 2% of your 1999 AGI, includ-ing:

a) Unreimbursed employee businessexpenses, such as educational ex-penses, work clothes and uniforms,union dues and fees, and the costof work-related small tools andsupplies,

b) Safe deposit box rental,

c) Tax counsel and assistance, and

d) Fees paid to an IRA custodian.

Adjusted gross income for purposes ofthe worksheet is your estimated total incomefor 1999 minus any estimated adjustments to

income (discussed later) that you include online 4 of the worksheet.

Enter your estimated total itemized de-ductions on line 1 of the worksheet.

Reduction of itemized deductions.For 1999, your total itemized de-ductions may be reduced if your ad-

justed gross income (AGI) is more than$126,600 ($63,300 if married filing sepa-rately). If you expect your AGI to be morethan that amount, use the following worksheetto figure the amount to enter on line 1 of theDeductions and Adjustments Worksheet.

Standard deduction (worksheet line 2).Enter on line 2 the standard deduction shownfor your filing status. Subtract line 2 from line1 and enter the result on line 3.

If line 2 is more than line 1, enter 0 online 3.

Adjustments to income (worksheet line 4).You can take the following adjustments to in-come into account when figuring additionalwithholding allowances for 1999. These ad-

justments appear on page 1 of your Form1040 or 1040A.

IRA contributions.

Student loan interest deduction.

Deduction for one-half of self-employment tax.

Deduction for 60% of self-employedhealth insurance.

Contributions to a retirement plan forself-employed individuals (Keogh plan orself-employed SEP or SIMPLE plan).

Contributions to a medical savings ac-count.

Penalty on early withdrawal of savings.

Alimony payments.

Certain moving expenses.

Net losses from Schedules C, D, E, andF of Form 1040 and from Part II of Form4797, line 18b(2).

Net operating loss carryovers.

Enter your estimated total adjustments to in-come on line 4 of the worksheet. Add lines 3

and 4 and enter the result on line 5.

Tax credits. Although you can take most taxcredits into account when figuring withholdingallowances, the Form W-4 worksheets useonly the child and dependent care credit (lineF of the Personal Allowances Worksheet) andthe child tax credit (line G). But you can takethese credits and others into account byadding an extra amount on line 5 of the De-ductions and Adjustments Worksheet.

If you take the child and dependent carecredit into account on line 5, do notuse lineF of the Personal Allowances Worksheet. Ifyou take the child tax credit into account online 5, do not use line G.

In addition to the child and dependent carecredit and child tax credit, you can take intoaccount the following credits.

Credit for the elderly or the disabled. SeePublication 524, Credit for the Elderly orthe Disabled.

Mortgage interest credit. See MortgageInterest Creditin Publication 530, TaxInformation for First-Time Homeowners.

Foreign tax credit, except any credit that

applies to wages not subject to U.S. in-come tax withholding because they aresubject to income tax withholding by aforeign country. See Publication 514,Foreign Tax Credit for Individuals.

Qualified electric vehicle credit. See Form8834 instructions.

Credit for prior year minimum tax if youpaid alternative minimum tax in an earlieryear. See Form 8801 instructions.

Earned income credit, unless you re-quested advance payment of the credit.See Publication 596, Earned IncomeCredit.

Adoption credit. See Publication 968, TaxBenefits for Adoption.

General business credit.

Hope credit. See Publication 970, TaxBenefits for Higher Education.

Lifetime learning credit. See Publication970.

To figure the amount to add on line 5 fortax credits, multiply your estimated totalcredits by the appropriate number from thefollowing tables.

1. Enter the estimated total of youritemized deductions ..........................

2. Enter the amount included in line 1 formedical and dental expenses, invest-ment interest, casualty or theft losses,and gambling losses ... .................. ....

3. Subtract line 2 from line 1 .................

Note. If the amount on line 3 is zero,stop here and enter the amount fromline 1 of this worksheet on line 1 of theDeductions and Adjustments Worksheet.4. Multiply the amount on line 3 by .80 .5. Enter your expected AGI ..................6. Enter $126,600 ($63,300 if married

filing separately) ................................7. Subtract line 6 from line 5 .................8. Multiply the amount on line 7 by .03 .9. Enter the smaller of line 4 or line 8 ..10. Subtract line 9 from line 1. Enter the

result here and on line 1 of the De-ductions and Adjustments Worksheet

Table 1.2

Credit Table AMarried Filing Jointly

or Qualifying Widow(er)If combinedestimatedwages are:

Multiplycredits

by:

$0 to 59,000 6.759,001 to 120,000 3.6120,001 to 174,000 3.2174,001 to 299,000 2.8over 299,000 2.5

Credit Table BSingle

If estimatedwages are:

Multiplycredits by:

$0 to 33,000 6.733,001 to 70,000 3.670,001 to 137,000 3.2137,001 to 290,000 2.8over 290,000 2.5

Credit Table CHead of Household


Multiplycredits by:

$0 to 46,000 6.746,001 to 101,000 3.6101,001 to 156,000 3.2156,001 to 295,000 2.8

Worksheet 1.2 over 295,000 2.5



7/48

Example 1.2. You are married and ex-pect to file a joint return for 1999. Your

combined estimated wages are $65,000.Your estimated tax credits include a child anddependent care credit of $960 and a mort-gage interest credit of $1,700.

In Credit Table A, the number for yourcombined estimated wages ($59,001 to$120,000) is 3.6. Multiply your total estimatedtax credits of $2,660 ($960 + $1,700) by 3.6.Add the result, $9,576, to the amount youwould otherwise show on line 5 of the De-ductions and Adjustments Worksheet andenter the total on line 5. Because you chooseto account for your child and dependent carecredit this way, you cannot use line F of thePersonal Allowances Worksheet.

Nonwage income (worksheet line 6). Enter

on line 6 your estimated total nonwage in-come (other than tax-exempt income).

Nonwage income. This includes interest,dividends, net rental income, unemploymentcompensation, alimony received, gamblingwinnings, prizes and awards, hobby income,capital gains, royalties, and partnership in-come.

Net deductions and adjustments (work-sheet line 7). Subtract line 6 from line 5 andenter the result (but not less than zero) on line7. If line 6 is more than line 5, you may nothave enough income tax withheld from yourwages. See Getting the Right Amount of TaxWithheld, later.

If line 7 is less than $3,000, enter 0 on

line 8. If line 7 is $3,000 or more, divide it by$3,000, drop any fraction, and enter the resulton line 8.

On line 9, enter the number from line Hof the Personal Allowances Worksheet.

Total withholding allowances (worksheetline 10). Add lines 8 and 9 and enter theresult on line 10. If you do not need to adjustyour withholding based on a two-earner ortwo-job situation, enter the number from line10 on line 5 of Form W-4.

Two-Earner/Two-Job WorksheetYou should complete this worksheet if any ofthe following three situations apply.

1) You are singleor married filing sepa-rately, you have more than one job, andyour combined earnings from all jobsexceed $32,000.

2) You are married filing jointly, you havea working spouse or more than one job,and your combined earnings from all

jobs exceed $55,000.

3) You expect to owe an amount other thanincome tax, such as self-employmenttax.

If only (3) applies, skip lines 1 through 7 andsee Other amounts owed, later.

CAUTION

!If you use this worksheet and yourearnings exceed $150,000 if you aresingle, or $200,000 if you are married,

see Publication 919 to check that you arehaving enough tax withheld.

Reducing your allowances (worksheetlines 1 3). On line 1 of the worksheet, enterthe number from line H of the Personal Al-lowances Worksheet (or line 10 of the De-ductions and Adjustments Worksheet, ifused). Using Table 1 on the Form W-4, find

the number listed beside the amount of yourestimated wages for the year from your low-estpaying job (or if lower, your spouse's job).Enter that number on line 2.

Subtract line 2 from line 1 and enter theresult (but not less than zero) on line 3 andon Form W-4, line 5. If line 1 is greater thanor equal to line 2, do not use the rest of theworksheet (or skip to line 8 if you expect toowe amounts other than income tax).

If line 1 is less than line 2, you shouldcomplete lines 4 through 9 of the worksheetto figure the additional withholding needed toavoid underwithholding.

Additional withholding (worksheet lines 4 9). If line 1 is less than line 2, enter thenumber from line 2 on line 4 and the numberfrom line 1 on line 5. Subtract line 5 from line4 and enter the result on line 6.

Annual amount. Using Table 2 on theForm W-4, find the number listed beside theamount of your estimated wages for the yearfrom your highest paying job (or if higher,your spouse's job). Enter that number on line7. Multiply line 7 by line 6 and enter the resulton line 8. If you do not expect to oweamounts other than income tax, this is theadditional withholding needed for the year.

Other amounts owed. If you expect toowe amounts other than income tax, such asself-employment tax, include them on line 8.The total is the additional withholding neededfor the year.

Additional withholding each payday.

Divide line 8 by the number of paydays re-maining in 1999. (For example, if you arepaid every other week and you have had 5paydays this year, divide by 21.) Enter theresult on line 9 of the worksheet and on FormW-4, line 6. This is the additional amount youwant withheld each payday.

Example 1.3Joyce Green works in a bookstore and ex-pects to earn about $13,300 in 1999. Herhusband, John, works full time at the AcmeCorporation, where his expected pay for 1999is $42,500. They file a joint income tax returnand claim their two young children as depen-dents. Because they file jointly, they use onlyone set of Form W-4 worksheets to figure thenumber of withholding allowances. TheGreens' worksheets and John's W-4 areshown in this chapter.

Personal Allowances Worksheet. On thisworksheet, John and Joyce claim allowancesfor themselves and their children by entering1 on line A, 1 on line C, and 2 on lineD. Because both John and Joyce will receivewages of more than $1,000, they are not en-titled to the additional withholding allowanceon line B. The Greens expect to have childand dependent care expenses of $2,400.They enter 1 on line F of the worksheet.Because they are married, their total incomewill be between $23,000 and $63,000, and

they have two eligible children, they enter 2on line G.

They enter their total personal allowances,7, on line H.

Deductions and Adjustments Worksheet.Because they plan to itemize deductions andclaim adjustments to income, the Greens usethis worksheet to see whether they are enti-tled to additional allowances.

The Greens' estimated itemized de-ductions total $11,200, which they enter on

line 1 of the worksheet. Because they will filea joint return, they enter $7,200 on line 2.They subtract $7,200 from $11,200 and enterthe result, $4,000, on line 3.

The Greens expect to have an adjustmentto income of $3,000 for their deductible IRAcontributions. They do not expect to have anyother adjustments to income. They enter$3,000 on line 4.

The Greens add line 3 and line 4 and en-ter the total, $7,000, on line 5.

Joyce and John expect to receive $600 ininterest and dividend income during the year.They enter $600 on line 6 and subtract line6 from line 5. They enter the result, $6,400,on line 7. They divide line 7 by $3,000, anddrop the fraction to determine their additionalallowances. They enter 2 on line 8.

The Greens enter 7 (the number fromline H of the Personal AllowancesWorksheet) on line 9 and add it to line 8. Theyenter 9 on line 10.

Two-Earner/Two-Job Worksheet. TheGreens use this worksheet because they bothwork and together earn over $55,000. Theyenter 9 (the number from line 10 of the De-ductions and Adjustments Worksheet) on line1.

Next, they use Table 1 on the Form W-4to find the number to enter on line 2 of theworksheet. Because they will file a joint returnand their expected wages from their lowestpaying job are $13,300, they enter 3 on line2. They subtract line 2 from line 1 and enter

6 on line 3 and on Form W-4, line 5.John and Joyce Green can take a total of

six withholding allowances between them.They decide that John will take all six allow-ances on his Form W-4. Joyce, therefore,cannot claim any allowances on hers. Shewill enter 0 on line 5 of the Form W-4 shegives to her employer.

Getting the Right Amountof Tax WithheldIn most situations, the tax withheld from yourpay will be close to the tax you figure on yourreturn if you follow these two rules.

1) You accurately complete all the Form

W-4 worksheets that apply to you.

2) You give your employer a new Form W-4when changes occur.

But because the worksheets and withholdingmethods do not account for all possible situ-ations, you may not be getting the rightamount withheld. This is most likely to happenin the following situations.

You are married and both you and yourspouse work.

You have more than one job at a time.

You have nonwage income, such as in-terest, dividends, alimony, unemployment

Credit Table DMarried Filing Separately


Multiplycredits by:

$0 to 28,000 6.728,001 to 58,000 3.658,001 to 86,000 3.286,001 to 148,000 2.8over 148,000 2.5



8/48

1

12

1

2

Example 1.3

444 0 0 4444John M. Green

28 Fairway

Anyt own, St at e 0 00 006

January 4, 1999

7

Form W-4 (1999)Purpose. Complete Form W-4 so your employercan withhold the correct Federal income taxfrom your pay. Because your tax situation maychange, you may want to refigure yourwithholding each year.

Head of household. Generally, you may claim

head of household filing status on your taxreturn only if you are unmarried and pay morethan 50% of the costs of keeping up a home foryourself and your dependent(s) or otherqualifying individuals. See line E below.

Exemption from withholding. If you areexempt, complete only lines 1, 2, 3, 4, and 7,and sign the form to validate it. Your exemption

for 1999 expires February 16, 2000.

Check your withholding. After your Form W-4takes effect, use Pub. 919 to see how the dollaramount you are having withheld compares toyour estimated total annual tax. Get Pub. 919especially if you used the Two-Earner/Two-JobWorksheet and your earnings exceed $150,000(Single) or $200,000 (Married).

Basic instructions. If you are not exempt,complete the Personal Allowances Worksheet.The worksheets on page 2 adjust yourwithholding allowances based on itemized

Two earners/two jobs. If you have a workingspouse or more than one job, figure the totalnumber of allowances you are entitled to claimon all jobs using worksheets from only oneForm W-4. Your withholding will usually be mostaccurate when all allowances are claimed onthe Form W-4 prepared for the highest payingjob and zero allowances are claimed for theothers.

Personal Allowances Worksheet

Enter 1 for yourself if no one else can claim you as a dependentA A

You are single and have only one job; or

Enter 1 if:B You are married, have only one job, and your spouse does not work; or B

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

Enter 1 for your spouse. But, you may choose to enter -0- if you are married and have either a working spouse ormore than one job. (This may help you avoid having too little tax withheld.)

CC

Enter number of dependents (other than your spouse or yourself) you will claim on your tax returnD D

E E

F F

Add lines A through G and enter total here. Note: This amount may be different from the number of exemptions you claim on your return. H H

If you plan to itemize or claim adjustments to income and want to reduce your withholding, see the Deductions

and Adjustments Worksheet on page 2.For accuracy,

complete all

worksheets

that apply.

If you are single, have more than one job and your combined earnings from all jobs exceed $32,000, OR if you

are married and have a working spouse or more than one job and the combined earnings from all jobs exceed

$55,000, see the Two-Earner/Two-Job Worksheet on page 2 to avoid having too little tax withheld.

If neither of the above situations applies, stop here and enter the number from line H on line 5 of Form W-4 below.

Cut here and give the certificate to your employer. Keep the top part for your records. OMB No. 1545-0010Employees Withholding Allowance CertificateW-4FormDepartment of the TreasuryInternal Revenue Service For Privacy Act and Paperwork Reduction Act Notice, see page 2.

Type or print your first name and middle initial1 Last name 2 Your social security number

Home address (number and street or rural route)MarriedSingle3 Married, but withhold at higher Single rate.

City or town, state, and ZIP code

Note: If married, but legally separated, or spouse is a nonresident alien, check the Single box.

55 Total number of allowances you are claiming (from line H above or from the worksheets on page 2 if they apply)

$66 Additional amount, if any, you want withheld from each paycheck7 I claim exemption from withholding for 1999, and I certify that I meet BOTH of the following conditions for exemption:

Last year I had a right to a refund of ALL Federal income tax withheld because I had NO tax liability AND This year I expect a refund of ALL Federal income tax withheld because I expect to have NO tax liability.

7If you meet both conditions, write EXEMPT here

8

Under penalties of perjury, I certify that I am entitled to the number of withholding allowances claimed on this certificate, or I am entitled to claim exempt status.Employees signature(Form is not validunless you sign it) Date

9 Employer identification numberEmployers name and address (Employer: Complete 8 and 10 only i f sending to the IRS) Office code(optional)

10

Enter 1 if you have at least $1,500 of child or dependent care expenses for which you plan to claim a credit

4 If your last name differs from that on your social security card, check

here. You must call 1-800-772-1213 for a new card

Cat. No. 10220Q

Enter 1 if you will file as head of household on your tax return (see conditions under Head of household above)

Note: You cannot claim exemption fromwithholding if (1) your income exceeds $700 andincludes more than $250 of unearned income(e.g., interest and dividends) and (2) anotherperson can claim you as a dependent on theirtax return.

Nonwage income. If you have a large amountof nonwage income, such as interest or Recent name change? If your name on line 1

differs from that shown on your social securitycard, call 1-800-772-1213 for a new socialsecurity card.

Child tax and higher education credits. Fordetails on adjusting withholding for these andother credits, see Pub. 919, Is My WithholdingCorrect for 1999?

G Child Tax Credit: If your total income will be between $20,000 and $50,000 ($23,000 and $63,000 if married), enter 1 for each

eligible child. If your total income will be between $50,000 and $80,000 ($63,000 and $115,000 if married), enter 1 if you have

two eligible children, enter 2 if you have three or four eligible children, or enter 3 if you have five or more eligible children G

1999

dividends, you should consider makingestimated tax payments using Form 1040-ES.Otherwise, you may owe additional tax.

deductions, adjustments to income, ortwo-earner/two- job situations. Complete allworksheets that apply. They will help you figurethe number of withholding allowances you areentitled to claim. However, you may claimfewer allowances.



9/48

11,20 0

7,200

4,0003,0007,000

6 0 06,400

27

9

9

3

6

Page 2Form W-4 (1999)

Deductions and Adjustments Worksheet

Note: Use this worksheet only if you plan to itemize deductions or claim adjustments to income on your 1999 tax return.Enter an estimate of your 1999 itemized deductions. These include qualifying home mortgage interest,charitable contributions, state and local taxes (but not sales taxes), medical expenses in excess of 7.5%of your income, and miscellaneous deductions. (For 1999, you may have to reduce your itemizeddeductions if your income is over $126,600 ($63,300 if married filing separately). Get Pub. 919 for details.)

1

$1

$7,200 if married filing jointly or qualifying widow(er)$$6,350 if head of household 2

Enter:2

$4,300 if single$3,600 if married filing separately $3 Subtract line 2 from line 1. If line 2 is greater than line 1, enter -0- 3 $Enter an estimate of your 1999 adjustments to income, including alimony, deductible IRA contributions, and student loan interest4

$5Add lines 3 and 4 and enter the total5$6Enter an estimate of your 1999 nonwage income (such as dividends or interest)6$7Subtract line 6 from line 5. Enter the result, but not less than -0-7

Divide the amount on line 7 by $3,000 and enter the result here. Drop any fraction8 8

Enter the number from Personal Allowances Worksheet, line H, on page 19 9

Add lines 8 and 9 and enter the total here. If you plan to use the Two-Earner/Two-Job Worksheet, also enterthis total on line 1 below. Otherwise, stop here and enter this total on Form W-4, line 5, on page 1

1010

Two-Earner/Two-Job Worksheet

Note: Use this worksheet only if the instructions for line H on page 1 direct you here.

1Enter the number from line H on page 1 (or from line 10 above if you used the Deductions and Adjustments Worksheet)1

2 Find the number in Table 1 below that applies to the LOWEST paying job and enter it here 2

3 If line 1 is GREATER THAN OR EQUAL TO line 2, subtract line 2 from line 1. Enter the result here (if

zero, enter -0-) and on Form W-4, line 5, on page 1. DO NOT use the rest of this worksheet 3

Note: If line 1 isLESS THANline 2, enter -0- on Form W-4, line 5, on page 1. Complete lines 49 to calculate

the additional withholding amount necessary to avoid a year end tax bill.

Enter the number from line 2 of this worksheet4 4

Enter the number from line 1 of this worksheet5 5

Subtract line 5 from line 46 6$Find the amount in Table 2 below that applies to the HIGHEST paying job and enter it here7 7$Multiply line 7 by line 6 and enter the result here. This is the additional annual withholding amount needed8 8

Divide line 8 by the number of pay periods remaining in 1999. (For example, divide by 26 if you are paidevery other week and you complete this form in December 1998.) Enter the result here and on Form W-4,line 6, page 1. This is the additional amount to be withheld from each paycheck

9

$9

Privacy Act and Paperwork Reduction Act Notice. We ask for the information on thisform to carry out the Internal Revenue laws of the United States. The Internal RevenueCode requires this information under sections 3402(f)(2)(A) and 6109 and their regulations.Failure to provide a properly completed form will result in your being treated as a singleperson who claims no withholding allowances; providing fraudulent information may alsosubject you to penalties. Routine uses of this information include giving it to theDepartment of Justice for civil and criminal litigation and to cities, states, and the District ofColumbia for use in administering their tax laws.

The time needed to complete this form will vary depending on individual circumstances.The estimated average time is: Recordkeeping 46 min., Learning about the law or theform 10 min., Preparing the form 1 hr., 10 min. If you have comments concerning theaccuracy of these time estimates or suggestions for making this form simpler, we would behappy to hear from you. You can write to the Tax Forms Committee, Western AreaDistribution Center, Rancho Cordova, CA 95743-0001. DO NOT send the tax form to thisaddress. Instead, give it to your employer.

4

Table 1: Two-Earner/Two-Job WorksheetAll OthersMarried Filing Jointly

Enter online 2 above

If wages from LOWESTpaying job are



$0 - $5,000 05,001 - 11,000 1

11,001 - 16,000 216,001 - 21,000 321,001 - 25,000 425,001 - 40,000 540,001 - 50,000 650,001 - 65,000 7

$0 - $4,000 04,001 - 7,000 17,001 - 12,000 2

12,001 - 18,000 318,001 - 24,000 424,001 - 28,000 528,001 - 35,000 635,001 - 40,000 7

Table 2: Two-Earner/Two-Job WorksheetAll OthersMarried Filing Jointly

If wages from HIGHESTpaying job are


If wages from HIGHESTpaying job are


$0 - $30,000 $40030,001 - 60,000 77060,001 - 120,000 850

120,001 - 250,000 1,000250,001 and over 1,100

$0 - $50,000 $40050,001 - 100,000 770

100,001 - 130,000 850130,001 - 240,000 1,000240,001 and over 1,100

40,001 - 45,000 845,001 - 54,000 954,001 - 62,000 1062,001 - 70,000 1170,001 - 85,000 1285,001 - 100,000 13

100,001 - 110,000 14110,001 and over 15



You are not required to provide the information requested on a form that is subject to thePaperwork Reduction Act unless the form displays a valid OMB control number. Books or

65,001 - 80,000 880,001 - 100,000 9

100,001 and over 10



records relating to a form or its instructions must be retained as long as their contents maybecome material in the administration of any Internal Revenue law. Generally, tax returnsand return information are confidential, as required by Code section 6103.



10/48

compensation, or self-employment in-come.

You will owe additional amounts with yourreturn, such as self-employment tax.

Your withholding is based on obsoleteForm W-4 information for a substantialpart of the year.

Your earnings are more than $150,000 ifyou are single or $200,000 if you aremarried.

To make sure you are getting the rightamount of tax withheld, get Publication 919.It will help you compare the total tax to bewithheld during the year with the tax you canexpect to figure on your return. It also will helpyou determine how much, if any, additionalwithholding is needed each payday to avoidowing tax when you file your return. If you donot have enough tax withheld, you may haveto make estimated tax payments. See chapter2 for information about estimated tax.

Rules Your EmployerMust FollowIt may be helpful for you to know some of the

withholding rules your employer must follow.These rules can affect how you fill out yourForm W-4 and how you handle problems thatmay arise.

New Form W-4. When you start a new job,your employer should give you a Form W-4to fill out. Your employer will use the infor-mation you give on the form to figure yourwithholding beginning with your first payday.

If you later fill out a new Form W-4, youremployer can put it into effect as soon as itis practical to do so. The deadline for puttingit into effect is the start of the first payroll pe-riod ending 30 or more days after you turn itin.

No Form W-4. If you do not give your em-ployer a completed Form W-4, your employermust withhold at the highest rateas if youwere single and claimed no allowances.

Repaying withheld tax. If you find you arehaving too much tax withheld because youdid not claim all the withholding allowancesyou are entitled to, you should give your em-ployer a new Form W-4. Your employer can-not repay you any of the tax withheld underyour old Form W-4.

However, if your employer has withheldmore than the correct amount of tax for theForm W-4 you have in effect, you do not haveto fill out a new Form W-4 to have your with-

holding lowered to the correct amount. Youremployer can repay you the amount that wasincorrectly withheld. If you are not repaid, youwill receive credit on your tax return for the fullamount actually withheld.

Sending your Form W-4 to the IRS. Youremployer will usually keep your Form W-4and use it to figure your withholding. Undernormal circumstances, it will not be sent to theIRS. However, your employer must send acopy of your Form W-4 to the IRS for verifi-cation in both of the following situations.

1) You claim more than 10 withholding al-lowances.

2) You claim exemption from withholdingand your wages are expected to usuallybe more than $200 a week. See Ex-emption From Withholding, later.

The IRS may ask you for informationshowing how you figured either the numberof allowances you claimed or your eligibilityfor exemption from withholding. If you choose,you can give this information to your employerto send to the IRS along with your Form W-4.

If the IRS determines that you cannot takeall the allowances you claimed on your FormW-4, or that you are not exempt as claimed,it will inform both you and your employer andwill specify the maximum number of allow-ances you can claim. The IRS also may askyou to fill out a new Form W-4. However, youremployer cannot figure your withholding onthe basis of more allowances than the maxi-mum number determined by the IRS.

If you believe you are exempt or can claimmore withholding allowances than determinedby the IRS, you can complete a new FormW-4, stating on the form, or in a writtenstatement, any circumstances that havechanged or any other reasons for your claim.You can send it directly to the IRS or give itto your employer to send to the IRS. Youremployer must continue to figure your with-

holding on the basis of the number of allow-ances previously determined by the IRS untilthe IRS advises your employer to withhold onthe basis of the new Form W-4.

There is a penalty for supplying false in-formation on Form W-4. See Penalties, later.

Social security (FICA) tax. Generally, eachemployer for whom you work during the taxyear must withhold social security tax up tothe annual limit.

Exemption FromWithholdingIf you claim exemption from withholding, youremployer will not withhold federal income taxfrom your wages. The exemption applies onlyto income tax, not to social security or Medi-care tax.

You can claim exemption from withholdingfor 1999 only if both the following situationsapply.

1) For 1998 you had a right to a refund ofall federal income tax withheld becauseyou had no tax liability.

2) For 1999 you expect a refund of all fed-eral income tax withheld because youexpect to have no tax liability.

Use Figure A in this chapter to help you

decide whether you can claim exemption. Donot use Figure A if you are 65 or older or blindor if you will itemize deductions or claim de-pendents or tax credits on your 1999 return.These situations are discussed later.

Student. If you are a student, you are notautomatically exempt. See Publication 4,Student's Guide to Federal Income Tax, tosee if you must file a return. If you work onlypart time or during the summer, you mayqualify for exemption from withholding.

Example 1.4. You are a high school stu-dent and expect to earn $2,500 from a sum-mer job. You do not expect to have any other

income during 1999, and your parents will beable to claim you as a dependent on their taxreturn. You worked last summer and had$375 federal income tax withheld from yourpay. The entire $375 was refunded when youfiled your 1998 return. Using Figure A, youfind that you can claim exemption from with-holding.

Example 1.5. The facts are the same asin Example 1.4, except that you have asavings account and expect to have $320 in-

terest income in 1999. Using Figure A, youfind that you cannot claim exemption fromwithholding because your unearned incomewill be more than $250 and your total incomewill be more than $700.

Age 65 or older or blind. If you are65 or older or blind, use one of thefollowing worksheets to help you de-

cide whether you can claim exemption fromwithholding. Do not use either worksheet ifyou will itemize deductions or claim depen-dents or tax credits on your 1999 return instead, see the discussion that follows theworksheets.

Worksheet 1.3Exemption From Withholding Worksheet

for 65 or Older or Blind

Use this worksheet only if, for 1998, you had a rightto a refund of all federal income tax withheld be-cause you had no tax liability.

Caution. This worksheet does not apply if you canbe claimed as a dependent. See Worksheet 1.4 in-stead.

1. Check the boxes below that apply to you.

65 or older Blind

2. Check the boxes below that apply to your spouseif you will claim your spouse's exemption on your1999 return.

65 or older Blind

3. Add the number of boxes you checkedin 1 and 2 above. Enter the result ..........

You can claim exemption from withholding if:

Your filingstatus is:

and thenumberon line 3above is:

and your 1999total incomewill be nomore than:

Single 1 $8,1002 9,150

Head of 1 $ 10,150household 2 11,200

Married filing 1 $ 7,200separately for 2 8,050both 1998 3 8,900and 1999 4 9,750

Other married 1 $13,550*status 2 14,400*

3 15,250*4 16,100*

*Include both spouses' income whether you will fileseparately or jointly.

Qualifying 1 $10,800widow(er) 2 11,650

You cannot claim exemption from withholding ifyour total income will be more than the amountshown for your filing status.



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Itemizing deductions or claiming depen-dents or tax credits. If you had no tax li-ability for 1998 and you will itemize your de-ductions or claim dependents or tax creditson your 1999 return, use the 1999 EstimatedTax Worksheet in Form 1040-ES (also seechapter 2), to figure your 1999 expected taxliability. You can claim exemption from with-holding 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.

Write EXEMPT on line 7.Your employer must send the IRS a copyof your Form W-4 if you claim exemption fromwithholding and your pay is expected to usu-ally be more than $200 a week. If it turns outthat you do not qualify for exemption, the IRSwill send both you and your employer a writ-ten notice.

If you claim exemption, but later your sit-uation changes so that you will have to payincome tax after all, you must file a new FormW-4 within 10 days after the change. If youclaim exemption in 1999, but you expect toowe income tax for 2000, you must file a newForm W-4 by December 1, 1999.

An exemption is good for only oneyear. You must give your employer a newForm W-4 by February 15 each year to con-tinue your exemption.

Supplemental WagesSupplemental wages include bonuses, com-missions, overtime pay, and certain sick pay.Your employer or other payer of supplementalwages may withhold income tax from thesewages at a flat rate of 28%. The payer canalso figure withholding using the samemethod used for your regular wages.

Also see Sick Pay, later.

Expense allowances. Reimbursements orother expense allowances paid by your em-ployer under a nonaccountable plan are

treated as supplemental wages. A nonac-countable plan is a reimbursement arrange-ment that does not require you to account for,or prove, your business expenses to youremployer or does not require you to returnyour employer's payments that are more thanyour proven expenses.

Reimbursements or other expense allow-ances paid under an accountable plan thatare more than your proven expenses aretreated as paid under a nonaccountable plan.However, this does not apply if you return theexcess payments within a reasonable periodof time.

For more information about accountableand nonaccountable plans, see chapter 6 ofPublication 463, Travel, Entertainment, Gift,and Car Expenses.

PenaltiesYou may have to pay a penalty of $500 if bothof the following apply.

1) You make statements or claim withhold-ing allowances on your Form W-4 thatreduce the amount of tax withheld.

2) You have no reasonable basis for thosestatements or allowances at the time youprepare your Form W-4.

There is also a criminal penalty for willfullysupplying false or fraudulent information onyour Form W-4 or for willfully failing to supplyinformation that would increase the amountwithheld. The penalty upon conviction can beeither a fine of up to $1,000 or imprisonmentfor up to one year, or both.

These penalties will apply if you delib-erately and knowingly falsify your Form W-4in an attempt to reduce or eliminate theproper withholding of taxes. A simple error

an honest mistake will not result in oneof these penalties. For example, a personwho has tried to figure the number of with-holding allowances correctly, but claimsseven when the proper number is six, will not

be charged a Form W-4 penalty. However,see chapter 4 for information on the under-payment penalty.

TipsThe tips you receive while working on your jobare considered part of your pay. You mustinclude your tips on your tax return on thesame line as your regular pay. However, taxis not withheld directly from tip income, as itis from your regular pay. Nevertheless, youremployer will take into account the tips youreport when figuring how much to withholdfrom your regular pay.

Reporting tips to your employer. If youreceive tips of $20 or more in a month whileworking for any one employer, you must re-port to your employer the total amount of tipsyou receive on the job during the month. Thereport is due by the 10th day of the followingmonth.

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

How employer figures amount to withhold.The tips you report to your employer arecounted as part of your income for the month

you report them. Your employer can figureyour withholding in either of two ways.

1) By withholding at the regular rate on thesum of your pay plus your reported tips.

2) By withholding at the regular rate on yourpay plus an amount equal to 28% of yourreported tips.

Not enough pay to cover taxes. If yourregular pay is too low for your employer towithhold all the tax (including social security

tax, Medicare tax, or railroad retirement tax)due on your pay plus your tips, you can giveyour employer money to cover the shortage.

If you do not give your employer moneyto cover the shortage, your employer will firstwithhold as much social security tax, Medi-care tax, or railroad retirement tax as possi-ble, up to the proper amount, and then with-hold income tax up to the full amount of yourpay. If not enough tax is withheld, you mayhave to make estimated tax payments. Whenyou file your return, you also may have to payany social security tax, Medicare tax, or rail-road retirement tax your employer could notwithhold.

Tips not reported to your employer. Onyour tax return, you must report all the tipsyou receive during the year, even tips you donot report to your employer. Make sure youare having enough tax withheld, or are payingestimated tax, to cover all your tip income.

Allocated tips. If you work in a large estab-lishment that serves food or beverages tocustomers, your employer may have to reportan allocated amount of tips on your FormW-2.

Your employer should not withhold incometax, social security tax, Medicare tax, or rail-road retirement tax on the allocated amount.Withholding is based only on your pay plusyour reported tips. Your employer shouldrefund to you any incorrectly withheld tax.

More information. For more information onthe withholding rules for tip income and on tipallocation, get Publication 531, Reporting TipIncome.

Taxable FringeBenefitsThe value of certain noncash fringe benefitsyou receive from your employer is consideredpart of your pay. Your employer generallymust withhold income tax on these benefitsfrom your regular pay for the period the ben-efits are paid or considered paid.

For information on taxable fringe benefits,see Fringe Benefits under Employee Com-pensationin Publication 525.

Your employer can choose not to withholdincome tax on the value of your personal useof a car, truck, or other highway motor vehicleprovided by your employer. Your employermust notify you if this choice is made.

When benefits are considered paid. Youremployer can choose to treat a fringe benefitas paid by the pay period, by the quarter, oron some other basis as long as the benefit isconsidered paid at least once a year. Youremployer can treat the benefit as being paidon one or more dates during the year, evenif you get the entire benefit at one time.

Worksheet 1.4Exemption From Withholding Worksheet

for Dependents Who Are 65 or Older or Blind

Use this worksheet only if, for 1998, you had a rightto a refund of all federal income tax withheld be-cause you had no tax liability.1. Enter your expected earned income plus

$250 ........................................................2. Minimum amount ..................................... $7003. Compare lines 1 and 2. Enter the larger

amount ....................................................4. Enter the appropriate amount from the

following table .........................................

Filing Status AmountSingle $4,300Married filing separately 3,600

5. Compare lines 3 and 4. Enter the smalleramount ....................................................

6. Enter the appropriate amount from thefollowing table .........................................

Filing Status AmountSingle

Either 65 or older or bl ind $1,050Both 65 or older and blind 2,100

Married filing separatelyEither 65 or older or blind $ 850Both 65 or older and blind 1,700

7. Add lines 5 and 6. Enter the result .........8. Enter your total expected income ...........

You can claim exemption from withholding if line 7

is equal to or more than line 8. If line 8 is more thanline 7, you cannot claim exemption from withhold-ing.



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Figure A. Exemption From Withholding on Form W-4

For 1998, did you have aright to a refund of ALLfederal income tax withheldbecause you had NO tax

liability?

For 1999, willsomeone (such asyour parent) be ableto claim you as adependent?

Will your 1999 incomebe more than $700?

Will your 1999 incomeinclude more than $250of unearned income(interest, d ividends, etc.)?

You CANNOT claimexemption fromwithholding.

You CAN claimexemption fromwithholding.

You CANNOT claimexemption fromwithholding.

Will your 1999 total income be more than the amountshown below for your filing status?

SingleHead of householdMarried filing separately for

BOTH 1998 and 1999Other married status (include BOTH

spouses income whether filingseparately or jointly)

Qualifying widow(er)

$ 7,0509,100

6,350

12,7009,950

Note: Do not use this chart if you are 65 or older or blind, or if you will itemize your deductions or claim dependents or tax credits.Instead, see the discussions in this chapter under Exemption From Withholding.

Yes

No

Yes

Yes

Yes

No

No

No

Yes

No

Start Here

Will your 1999 total income be:$4,300 or less if single, or$3,600 or less if married?

Yes

No

Special rule. Your employer can chooseto treat a benefit provided during Novemberor December as paid in the next year. Youremployer must notify you if this rule is used.

Example 1.6. Your employer considersthe value of benefits paid from November 1,1997, through October 31, 1998, as paid toyou in 1998. To determine the total value ofbenefits paid to you in 1999, your employerwill add the value of any benefits paid in No-vember and December of 1998 to the valueof any benefits paid in January through Oc-tober of 1999.

Exceptions. Your employer cannotchoose when to withhold tax on certain ben-efits. These benefits are transfers of eitherreal property or personal property of a kindnormally held for investment (such as stock).Your employer must withhold tax on thesebenefits at the time of the transfer.

How withholding is figured. Your employercan either add the value of a fringe benefit toyour regular pay and figure income tax with-holding on the total or withhold 28% of thebenefit's value.

If the benefit's actual value cannot be de-termined when it is paid or treated as paid,

your employer can use a reasonable esti-mate. Your employer must determine the ac-tual value of the benefit by January 31 of thenext year. If the actual value is more than theestimate, your employer must pay the IRSany additional withholding tax required. Youremployer has until April 1 of that next year torecover from you the additional tax paid to theIRS for you.

How your employer reports your benefits.Your employer must report on Form W-2,Wage and Tax Statement, the total of thetaxable fringe benefits paid or treated as paidto you during the year and the tax withheld for



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the benefits. These amounts can be showneither on the Form W-2 for your regular payor on a separate Form W2. If your employerprovided you with a car, truck, or other motorvehicle and chose to treat all of your use ofit as personal, its value must be either sepa-rately shown on Form W-2 or reported to youon a separate statement.

Sick PaySick pay is a payment to you to replace yourregular wages while you are temporarily ab-sent from work due to sickness or personalinjury. To qualify as sick pay, it must be paidunder a plan to which your employer is aparty.

If you receive sick pay from your employeror an agent of your employer, income taxmust be withheld just as it is from your regularpay.

However, if you receive sick pay from athird party who is not acting as an agent ofyour employer, income tax will be withheldonly if you choose to have it withheld. SeeForm W-4S, later.

If you receive payments under a plan inwhich your employer does not participate

(such as an accident or health plan where youpaid all the premiums), the payments are notsick pay and usually are not taxable.

Union agreements. If you receive sick payunder a collective bargaining agreement be-tween your union and your employer, theagreement may determine the amount of in-come tax withholding. See your union repre-sentative or your employer for more informa-tion.

Form W-4S. If you choose to have income taxwithheld from sick pay paid by a third party,such as an insurance company, you must fillout Form W-4S. Its instructions contain aworksheet you can use to figure the amount

you want withheld. They also explain re-strictions that may apply.Give the completed form to the payer of

your sick pay. The payer must withhold ac-cording to your directions on the form.

If you do not request withholding on FormW-4S, or if you do not have enough tax with-held, you may have to make estimated taxpayments. If you do not pay enough esti-mated tax or have enough income tax with-held, you may have to pay a penalty. Seechapters 2 and 4.

Form W-4S remains in effect until youchange or cancel it, or stop receiving pay-ments. You can change your withholding bygiving a new Form W-4S or a written noticeto the payer of your sick pay.

Pensions andAnnuitiesIncome tax usually will be withheld from yourpension or annuity distributions, unless youchoose not to have it withheld. This rule ap-plies to distributions from:

An individual retirement arrangement(IRA),

A life insurance company under an en-dowment, annuity, or life insurance con-tract,

A pension, annuity, or profit-sharing plan,

A stock bonus plan, and

Any other plan that defers the time youreceive compensation.

The amount withheld depends on whetheryou receive payments spread out over morethan one year (periodic payments), within oneyear (nonperiodic payments), or as an eligiblerollover distribution (ERD).

You cannot choose not to have income taxwithheld from an ERD. ERDs are discussed

later.

Nontaxable part. A part of your pension orannuity may not be taxable. This is the partthat is a return of your investment in your re-tirement plan the amount you paid into theplan or its cost to you. Income tax will not bewithheld from the part of your pension or an-nuity that is not taxable. The tax withheld willbe figured on, and cannot be more than, thetaxable part.

For information about figuring the part ofyour pension or annuity that is not taxable,see Publication 575, Pension and Annuity In-come.

Periodic PaymentsWithholding from periodic payments of apension or annuity is figured in the same wayas withholding from salaries and wages. Totell the payer of your pension or annuity howmuch you want withheld, fill out Form W-4P,or a similar form provided by the payer. Fol-low the rules discussed under Salaries andWages, earlier, to fill out your Form W-4P.

The withholding rules for pensions andannuities differ from those for salaries andwages in the following four ways.

1) If you do not fill out a withholdingcertificate, tax will be withheld as if youwere married and claiming three with-holding allowances. This means that taxwill be withheld only if your pension or

annuity is at least $1,240 a month (or$14,880 a year).

2) Your certificate will not be sent to theIRS regardless of the number of allow-ances you claim on it.

3) You can choose not to have tax with-held, regardless of how much tax youowed last year or expect to owe thisyear. You do not have to qualify for ex-emption. See Choosing Not To Have In-come Tax Withheld, later.

4) If you do not give the payer your so-cial security number (in the requiredmanner) or the IRS notifies the payer,before any payment or distribution ismade, that you gave it an incorrect socialsecurity number, tax will be withheld asif you were single and were claiming nowithholding allowances.

Military retirement pay. This generally istreated in the same manner as wages andnot as a pension or annuity for income taxwithholding purposes. Military retirees shoulduse Form W-4, not Form W-4P.

Effective date of withholding certificate.If you give your withholding certificate (FormW-4P or a similar form) to the payer by thetime your payments start, it will be put intoeffect by the first payment made more than30 days after you submit the certificate.

If you give the payer your certificate afteryour payments start, it will be put into effectwith the first payment made on or after Jan-uary 1, May 1, July 1, or October 1, whicheveris at least 30 days after you submit it. How-ever, the payer can elect to put it into effectearlier.

Nonperiodic PaymentsTax will be withheld at a 10% rate on anynonperiodic payments you receive.

Because withholding on nonperiodic pay-ments does not depend on withholding al-lowances or whether you are married or sin-gle, you cannot use Form W-4P to tell thepayer how much to withhold. But you can useForm W-4P to specify that an additionalamount be withheld. You can also use FormW-4P to choose not to have tax withheld orto revoke a choice not to have tax withheld.

CAUTION

!The 10% rate of withholding on non-periodic payments is less than thelowest tax rate (15%). You may need

to use Form W-4P to ask for additional with-holding. If you do not have enough tax with-held, you may need to make estimated taxpayments, as explained in chapter 2.

Eligible RolloverDistributionsDistributions you receive that are eligible tobe rolled over tax free into qualified retirementor annuity plans are subject to a 20% with-holding tax.

This type of distribution is called an eligi-ble rollover distribution (ERD). This is anydistribution from a qualified pension plan ortax-sheltered annuity other than either:

1) A minimum required distribution, or

2) One of a series of substantially equalperiodic pension or annuity paymentsmade over:

a) Your life (or your life expectancy)or the joint lives of you and yourbeneficiary (or your life expectan-cies), or

b) A specified period of 10 or moreyears.

The withholding rules for non-ERD distribu-tions are discussed earlier under PeriodicPaymentsand Nonperiodic Payments.

A distribution is subject to withholding if itis not substantially equal to the periodic pay-ments.

For example, upon retirement you receive30% of your accrued pension benefits in theform of a single-sum distribution with the bal-

ance payable in annuity form. The 30% dis-tribution is an ERD subject to 20% withhold-ing. The annuity payments are periodicpayments subject to withholding only if youchoose to have withholding taken out.

The payer of a distribution must withholdat a 20% rate on any part of an ERD that isnot rolled over directly to another qualifiedplan. You cannot elect not to have withholdingon these distribu

us internal revenue service: p505--1998

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