AccessibilitySkip to Top NavigationSkip to Main ContentHome  |  Contact IRS  |  About IRS  |  Site Map  |  Español  |  Help  

Part 21. Customer Account Services

Chapter 6. Individual Tax Returns

Section 3. Credits (Cont. 1)

21.6.3  Credits (Cont. 1)

21.6.3.4 
Credits Procedures

21.6.3.4.1 
Non-Refundable Credits Procedures

21.6.3.4.1.32  (10-01-2002)
Form 8881 Credit for Small Employer Pension Plan Startup Costs

  1. For information concerning the Credit for Small Employers Pension Plan Startup Costs, see IRM 21.7.4.4.8.3.19, Credit for Small Employers Pension Plan Startup Costs.

21.6.3.4.1.33  (10-01-2002)
Form 8882 Credit for Employer Provided Childcare Facilities and Services

  1. For information concerning the Credit for Employer-Provided Childcare Facilities and Services, see IRM 21.7.4.4.8.3.18, Credit for Employer-Provided Childcare Facilities and Services.

21.6.3.4.1.34  (01-09-2003)
Form 8874 - New Markets Credit

  1. For information concerning the New Markets Credit, see IRM 21.7.4.4.8.3.20, Form 8874, New Markets Credit.

21.6.3.4.1.35  (03-11-2003)
Form 8860 - Qualified Zone Academy Bond Credit

  1. Eligible holders of qualified zone academy bonds use Form 8860, Qualified Zone Academy Bond Credit, to claim the qualified zone academy bond credit.

  2. A qualified zone academy bond is a taxable bond issued after 1997 by a state or local government, the proceeds of which are used to improve certain eligible public schools.

  3. In lieu of receiving periodic interest payments from the issuer, an eligible holder of the bond is generally allowed an annual income tax credit while the bond is outstanding.

  4. An eligible holder of a qualified zone academy bond files Form 8860, Qualified Zone Academy Bond Credit, for each tax year it holds the bond on the credit allowance date.

  5. To be an eligible holder, the taxpayer must be a bank, insurance company or other corporation actively engaged in the business of lending money, or a shareholder of an S Corporation that is an eligible holder.

  6. The credit allowance date is the last day of:

    • The 1-year period beginning on the date the bond was issued and

    • Each successive 1-year period thereafter.

  7. The credit is deemed paid on the credit allowance date and is included in the taxpayer's gross income. The credit can be claimed on the "Other Credits" line on Form 1040, U.S. Individual Income Tax Return. Refer to IRM 21.7.4.4.8.3.17, Qualified Zone Academy Bond Credit, or Form 8860, Qualified Zone Academy Bond Credit, for detailed information.

21.6.3.4.1.36  (10-01-2007)
Advance Payment of Child Tax Credit (APCTC)

  1. The Jobs and Growth Tax Reconciliation Act of 2003 approved by Congress and signed by President Bush, directed the Treasury to advance payment of an increase to the 2003 Child Tax Credit (CTC) to eligible taxpayers.

  2. The IRS processed Advance Child Tax Credit checks based on original return data from posted Tax Year (TY) 2002 returns.

  3. Notice 1319, Notice of Advance Payment of Increase of the 2003 Child Tax Credit, was mailed to all taxpayers who received the advance payment.

21.6.3.4.1.36.1  (10-01-2007)
IDRS Account Information

  1. The advance payment of child tax credit (APCTC) posted to the 2002 tax module as an adjustment transaction TC 290 .00 and TC 766 credit reference number (CRN) 338. The date of the transaction was the posting date. The last two digits of the primary taxpayer identification number (TIN) determined when the systemic transaction posted. For the systemically posted TC 290 .00 CRN 338, a DLN of NN254999050993 was used for the TY 2002. (NN is the file location code (FLC) portion from the control DLN).

  2. Reason Codes (RC) 071, 077, and 079 were used for the ACTC. The program analyzed the 2002 tax module and based on the conditions present, systemically posted the credit and generated a 1319 notice to the taxpayer.

    1. The number of children the credit was computed on was generated in the first RC position, i.e. 001, 002, 003, etc.

    2. The second reason code position, RC 071, indicated the maximum credit was computed with no limitations; RC 079 indicated the credit was reduced due to the tax liability and earned income limitation and RC 077 was only used on reversal of credits not refunded prior to 12-31-2003.

    3. The ONLY instances you will be adjusting a previously posted credit are mixed entities/periods, scrambled SSN cases, and account back-outs. If reversing the entire credit put the number of children the credit was calculated on in the first RC position and 071 or 079, whichever applies, in the second RC position.

    4. If any portion or the entire APCTC offset to another IRS tax account, this was indicated on the vendor notice. A CP 49 was issued from the account to which the overpayment was applied.

  3. Since in most instances checks were not sent out after December 31, 2003, December 5, 2003 was the last date an IDRS transaction could be input to transfer or release the TC 766, APCTC. This included manual refunds.

  4. Any APCTC remaining on a TY 2002 account was systemically reversed in cycle 200352.

21.6.3.4.1.36.2  (10-01-2007)
Refund Issues

  1. According to Federal legislation, interest was not allowed on the 2003 advance payment of child tax credit (APCTC).

    Note:

    APCTC offset to pay a tax or nontax debt lost its identity as APCTC. Credit interest is appropriate if any or all of the credit is subsequently refunded. Example: APCTC was offset by FMS to pay child support. The taxpayer files an injured spouse claim and all or part of the credit is returned to the 2002 account. Interest should be paid on the overpayment.

  2. The Treasury did not issue the APCTC by direct deposit.

21.6.3.4.1.36.3  (10-01-2006)
Tax Year 2002 Offset Reversal Issues: Injured Spouse/Innocent Spouse/EITC, Etc.

  1. Once the ACTC was used to "pay" (through credit to the account) either tax or non-tax debt AND a subsequent event results in the account being in a credit balance, the refund is then a return of overpaid taxes (or child support or student loan).

  2. The ACTC lost its identity because it was used to pay a debt.

  3. Normal interest considerations applied when the overpayment was offset to other tax or non-tax debts. See IRM 20.2, Interest.

    • TC 766 CRN 338 input after cycle 200352 to reinstate the ACTC will post back to the 200212 module with the current 23C date.

    • Debit interest may erroneously generate.

    • Credit interest is due to the taxpayer.

    • Use the original availability date of the ACTC and manually compute allowable credit interest.

    • Issue a manual refund if applicable.


    Example:

    If the original TC 766 CRN 338 posted with the 23C date of September 1, 2003 and the reinstatement will post with the 23C date of May 24, 2004, compute allowable interest from September 1, 2003, to May 24, 2004.


  4. The following are specific examples showing the ACTC has lost its identity. Normal refund procedures apply to these examples:

    Example:

    The ACTC was applied to a prior year balance owing on a joint account. A spouse files for Innocent Spouse relief. Relief is granted and the ACTC is moved back to the 2002 account; Examination will move the appropriate amount. Do not reverse the ACTC; refund to the spouse granted relief.

    Example:

    The ACTC was credited against a balance due account. A credit is moved into the previous balance due account creating a credit balance consisting of all or a portion of the ACTC. Do not reverse the ACTC; refund the overpayment to the taxpayer(s)

    Example:

    The ACTC was offset to a tax or non-tax debt by FMS (such as state tax, child support or student loan). An event causes a credit to be returned to the 2002 account consisting of all or a portion of the ACTC. Do not reverse the ACTC; refund the overpayment to the taxpayer(s).

  5. The following are examples of situations when the ACTC cannot be reinstated and reissued:

    Example:

    The ACTC check was returned on a decedent return by the executor/surviving spouse with a request to reissue the check. A tax return for 2003 was not filed. It is after December 31, 2003. The ACTC cannot be reinstated/reissued.

    Note:

    There is no recourse for decedent issues when the ACTC was reversed in cycle 200352 and no 2003 tax return will be filed for the decedent.

    Example:

    The ACTC check was returned as undeliverable, action was taken to reissue the ACTC, it did not post before cycle 200352 and the credit was reversed. In this case, the ACTC cannot be reinstated to the 200212 account.

21.6.3.4.1.37  (10-01-2007)
Form 8864, Biodiesel and Renewable Diesel Fuels Credit

  1. Form 8864, Biodiesel and Renewable Diesel Fuels Credit, is used to claim a credit for the tax year in which the sale or use occurs. The credit consists of:

    • Biodiesel and Renewable Diesel Mixture Credit and

    • Biodiesel and Renewable Diesel Credit

    • Small Agribiodiesel Producer Credit

  2. The biodiesel mixture credit and biodiesel credit are effective for fuels sold or used after December 31, 2004. The small agribiodiesel producer credit applies to tax years ending after August 8, 2005. The renewable diesel credit and mixture credit is effective for sales or use after December 31, 2005.

  3. For TY 2006 and subsequent the credit can be claimed as a general business credit on Form 3800, General Business Credit.

  4. For TY 2005 and prior Form 8864, Biodiesel and Renewable Diesel Fuels Credit, must be submitted. (The credit must be carried to Form 3800, General Business Credit, if two or more credits are claimed.)

  5. Only one credit may be taken with respect to any gallon of biodiesel or renewable diesel. If any amount is claimed (or will be claimed), with respect to any gallon of biodiesel in a biodiesel mixture on Form 720, Quarterly Federal Excise Tax Return, Form 8849, Claim for Refund of Excise Taxes, or Form 4136, Credit for Federal Tax Paid on Fuels, then a claim cannot be made on Form 8864 for that gallon of biodiesel.

    Note:

    See Form 8864, Biodiesel and Renewable Diesel Fuels Credit, for detailed information.

  6. Taxpayers must take the biodiesel or renewable diesel mixture credit against their Form 720 fuel tax liability first and can use the Form 8864 to the extent that liability is exceeded.

21.6.3.4.1.38  (10-01-2007)
Form 8896, Low Sulfur Diesel Fuel Production Credit

  1. Form 8896, Low Sulfur Diesel Fuel Production Credit (LSDFPC), generally is 5 cents for every gallon of low sulfur diesel fuel produced at a particular facility by a qualified small business refiner during the taxable year.

  2. For TY 2006 and subsequent, the credit can be claimed as a general business credit on Form 3800, General Business Credit.

  3. For TY 2004 and TY 2005, Form 8896 must be submitted. (The credit must be carried to Form 3800, General Business Credit, if two or more credits are claimed.)

  4. See Form 8896, Low Sulfur Diesel Fuel Production Credit, for detailed information.

21.6.3.4.1.39  (10-01-2007)
Form 8900, Qualified Railroad Track Maintenance Credit

  1. Form 8900, Qualified Railroad Track Maintenance Credit, generally is 50 percent of the qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer during the taxable year.

  2. The credit applies to qualified railroad track maintenance expenditures paid or incurred during tax years beginning after December 31, 2004, and before January 1, 2008.

  3. For TY 2006 and subsequent, the credit must be claimed as a general business credit on Form 3800, General Business Credit.

  4. For TY 2005, Form 8900 must be submitted. (The credit must be carried to Form 3800, General Business Credit, if two or more credits are claimed).

  5. See Form 8900, Qualified Railroad Track Maintenance Credit, for detailed information.

21.6.3.4.1.40  (10-01-2007)
Form 8910, Alternative Motor Vehicle Credit

  1. Form 8910, Alternative Motor Vehicle Credit, is used to claim a credit for the purchase of new qualifying alternative motor vehicles placed in service after December 31, 2005.

  2. The four types of qualifying vehicles are:

    • Advanced lean burn technology motor vehicles

    • Qualified hybrid motor vehicles

    • Qualified alternative fuel motor vehicles

    • Qualified fuel cell motor vehicles

  3. The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the vehicle is property that is subject to an allowance for depreciation.

  4. See Form 8910, Alternative Motor Vehicle Credit, for detailed information.

21.6.3.4.1.41  (10-01-2007)
Form 8911, Alternative Fuel Vehicle Refueling Property Credit

  1. Form 8911, Alternative Fuel Vehicle Refueling Property Credit, is used to claim a tax credit for 30% of the cost of qualified alternative fuel vehicle refueling property placed in service after December 31, 2005, and before January 1, 2010 (January 1, 2015, for hydrogen related property). The refueling property may be used in the taxpayer's trade or business or installed at the taxpayer's principal residence.

  2. The allowable credit for qualified alternative fuel vehicle refueling property may not exceed:

    • $30,000 if used in a trade or business or

    • $1,000 if installed at the taxpayer's principal residence.

  3. The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the property is subject to an allowance for depreciation.

  4. See Form 8911, Alternative Fuel Vehicle Refueling Property Credit, for detailed information.

21.6.3.4.1.42  (10-01-2007)
Form 8912, Clean Renewable Energy Bond Credit and Gulf Bond Credit

  1. Form 8912, Clean Renewable Energy Bond Credit and Gulf Bond Credit, is used to compute a qualified borrowers clean renewable energy bond (CREB) credit and gulf bond credit.

  2. A CREB is any bond issued to finance facilities that would qualify for the tax credit and the gulf bond credit is issued for the purpose of renovating, providing equipment to, developing course material for use at, or training teachers and other personnel at, certain school facilities.

  3. The credit is available for bonds issued after December 31, 2005 and before January 1, 2009.

  4. See Form 8912, Clean Renewable Energy Bond Credit and Gulf Bond Credit, for detailed information.

21.6.3.4.2  (10-01-2007)
Refundable Credits

  1. Refundable credits:

    • Withholding (W/H)

    • Estimated (ES) tax payments

    • Earned Income Tax Credit

    • Form 8812, Additional Child Tax Credit

    • Excess Social Security, Medicare, and RRTA Tax Credits

    • Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains

    • Form 4136, Credit for Federal Tax Paid on Fuels

    • Form 8885, Health Coverage Tax Credit (HCTC)

    • Form 8801, Credit for Prior Year Minimum Tax

  2. In lieu of a refund, taxpayer may request all or a portion of the overpayment to be credited to the subsequent tax year as an estimated payment.

21.6.3.4.2.1  (03-02-2006)
Outstanding Balance Considerations Prior to Refund or Credit-Elect

  1. An overpayment is refunded or applied as credit-elect only after all other outstanding obligations are satisfied (spousal obligations, non-tax debts, etc.).

    Reminder:

    If a manual refund is planned, be sure to check Non-Master File accounts for any outstanding balance.

    If And Then
    A tax return for a period more than one year prior to the current processing year The "TO" module (module to be credited) is exactly one year later (not a short period), and/or does not contain TC 150 A credit-elect is generated, for the first attempt only.
    The credit-elect posted is less than the original return requested The date is prior to the end of the processing year in which the credit-elect originated The computer continues to auto-offset as more credit becomes available until the full credit elect amount is satisfied. This capability exists up to one year after the original tax period ending date (e.g., up to December 31, 2006 for a 2005 return).

    Caution:

    The adjustment generating the credit elect amount must post to Masterfile with a current year cycle for the credit elect to occur. When inputting this type of adjustment at the end of the year verify the posting cycle of your adjustment using CC MESSG or Doc 6209.

    An additional credit-elect amount should be applied The adjustment may not post until after the computer generated credit-elect auto-offset capability has ended. Credit-elect is transferred with TC 830/710 (use hold code on adjustment).
    A TC 832 was previously input A math/clerical error indicator is present The computer will not generate a secondary TC 836.
    Taxpayer's claim requests application of an overpayment as credit-elect to the next year The computer generated credit-elect auto-offset capability has ended Credit-elect is transferred with TC 830/710 (use hold code on adjustment).
    Return was coded with CCC "F" (TC 540 was generated) The return was coded in error Reverse the TC 540 with TC 542 (corrects mail file requirement).

    Note:

    Computer-generated credit-elect greater than $24.99 will be compared against a non-tax debtor file provided by FMS. If a debt is found, a refund is issued up to the amount of the debt for offset by FMS. Remaining credit, if any, will be applied to the subsequent tax period.

21.6.3.4.2.2  (05-04-2007)
Withholding (W/H) Tax Credit

  1. Employers are required to withhold income tax on wages paid to employees. A Form W-2, Wage & Tax Statement, is issued to the employee by January 31 following the end of the taxable year. This form shows the wages and the total withholding (W/H) deducted for the year.

  2. For information on how to claim Backup Withholding (BUWH), see IRM 21.7.2.4.15.5.2, BUWH Claims for Taxpayers Other Than Exempt Entities.

  3. W/H may be deducted from various other types of income which the taxpayer may receive. Verify the W/H amount is picked up from the correct box.

  4. Taxpayer must furnish:

    • Form W-2, Wage & Tax Statement, or

    • Form W-2G, Statement for Recipients of Certain Gambling Winnings, or

    • Form 1099–R, Distribution from Pensions, Annuities, Retirement, or Profit Sharing Plans, IRAs, Insurance Contracts, etc. or

    • Form 4852, Substitute for Form W2 or Form 1099–R, or

    • Similar documentation

    Caution:

    If the W/H amount is altered, refer to Criminal Investigation.

  5. Do not return an original Form W-2, Copy C, to taxpayer. If no adjustment is necessary, refile with original return. If filed electronically, destroy as classified. Treat photocopies as classified waste.

  6. If taxpayer received a notice showing math error codes 283, refer to IRM 21.5.4, General Math Error Procedures.

  7. Use CC IRPTR to access a summary of the Information Returns Master File; data extracted from Forms W2/W2G and Forms 1099 are available.

    Reminder:

    The Tax-Withheld summary may be used to allow W/H over the tolerance amount if it appears the taxpayer reported all income.

  8. Verify original return information using CC RTVUE, CC IRPTR, or CC IMFOL, as appropriate. Request the return only as a last resort.

  9. Taxpayer may write or telephone about their tax account. If the inquiry is by telephone:

    1. Request disclosure information from taxpayer to be sure you have the correct person.

    2. Accept oral statement for account action after disclosure information is verified.

    3. In the REMARKS section of an on-line adjustment, with or without a source document, enter complete disclosure information.

    4. If the adjustment is input on-line but a Form 4442, Inquiry Referral, is not required, no source document is sent to Files.

    5. If the adjustment will not be input on-line or by COB, complete Form 4442.

  10. Allow up to ≡ ≡ ≡ ≡ of W/H tax credit with oral statement or written request, if ALL the following criteria are met:

    1. The W/H credit amount was incorrectly reported or processed.

    2. The W/H relates to income already included on the original or amended return.

    3. A previous adjustment has not been made to the W/H tax credit for this module.

  11. Examine all documents and related information before making adjustments or answering taxpayer inquiries.

  12. Consider the following before deciding to allow the W/H:

    If Then
    The W/H amount ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the income amount on Form W-2 . Refer the case to Criminal Investigation.
    The W/H amount is equal/similar to the FICA on the same amount of income The taxpayer has mistaken FICA for W/H. Allow W/H amount from the Form W-2.
    The total payment is≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , but no entries are in the "payment" section Do not adjust the taxpayer's figures. (Code & Edit allowed the amount as "W/H" during processing.)
    If CC RTVUE shows W/H was reported/transcribed as refundable credit (i.e., EITC, ES Payment) Adjust the withholding.
    Form 1099-R also reflects the credits for back-up W/H Allow taxpayer's figures.
    Withholding information was submitted previously and W/H is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ relation to income on the return cannot be determined. Request the return to verify the W/H.

  13. Federal Income Tax Withholding (FTW) reported on a Form 1041, U.S. Income Tax Return for Estates & Trusts, in the Trust's or Estate's name and Employer Identification Number (EIN) CANNOT be transferred from the Trust or Estate to an individual taxpayer's (beneficiary's) Form 1040, U.S. Individual Income Tax Return, account. There are no provisions of law that allow us to distribute FITW to beneficiaries. See IRM 21.7.4.4.1.12, Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries.

21.6.3.4.2.2.1  (10-01-2006)
W/H Adjusting the Account

  1. Check for possible estimated tax (ES) penalty changes. (Refer to IRM 20.1.3, Estimated Tax Penalties)

    If And Then
    TC 176/177 is on the module   ES penalty is systemically recomputed
    Reminder: Use PC 8 to bypass unpostable condition code 158-0.
    TC 170/171 is on the module DLN doc code is 17, 18, 24, 47, 51, 52 or 54 1. Manually recompute ES penalty.
    2. Priority Code (PC) 8 is not required.
    TC 170 is on the module Has the same DLN as the TC 150 The ES penalty systemically recomputes only if ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .
    Reminder: Use PC 8 to bypass unpostable condition code 158-0.
    TC 170/171 is on the module The DLN is not the same as the TC 150 1. Recompute the ES penalty.
    2. Priority Code (PC) 8 is not required.

  2. Input an adjustment to allow the W/H credit using:

    1. TC 290 .00, if no tax change is required.

    2. TC 806 to increase the posted credit, or TC 807 with a minus (-) to decrease the posted credit.

    3. The appropriate SC, RC(s), and blocking series.

21.6.3.4.2.3  (10-01-2007)
Estimated Tax (ES)

  1. Estimated tax (ES) is the method used to pay:

    • Tax on income not subject to withholding

    • Tax when the amount withheld is not enough

    • Income tax and self-employment tax, as well as other taxes and amounts reported on the return

    Note:

    See Form 1040-ES, Estimated Tax For Individuals, and its instructions, or Publication 17, Your Federal Income Tax (For Individuals), and Publication 505, Tax Withholding and Estimated Tax, for detailed information on ES payments and penalty.

  2. Estimated tax payments are submitted with Form 1040-ES, Estimated Tax For Individuals. Payment due dates for a calendar year return (unless the due date falls on a Saturday, Sunday, or legal holiday) are:

    • April 15

    • June 15

    • September 15

    • January 15 of the following year

  3. Taxpayer requests to apply current year estimated tax payments to a previous year's outstanding tax liability cannot be honored. Section 6402(a) of the Code provides that in the case of an overpayment, the Secretary, within the applicable period of limitation, may credit the amount of the overpayment against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall refund any balance to such person. The Service is authorized to make a refund only if an overpayment exists. Therefore the Service does not have the authority to apply an estimated tax installment to an outstanding tax liability until the estimated tax installment constitutes an overpayment. An "overpayment" cannot be determined until after the close of the taxable year when the tax liability is determined.

    Exception:

    The restriction above does not apply to a payment incorrectly processed as an estimated tax payment due to an IRS processing error. This can be verified by reviewing the payment document and/or requesting the payment DLN.

21.6.3.4.2.3.1  (10-01-2007)
ES Penalty

  1. An ES penalty is charged if taxpayer did not pay sufficient ES payments when due or have adequate tax withheld from income earned during the tax year.

    1. Taxpayers may compute the penalty on Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, or Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, or have the IRS compute the penalty, if appropriate.

    2. Generally, the penalty may be avoided if the taxpayer paid either 90% of the current year's tax liability or 100% of the tax liability shown on the prior year's tax return. For higher income taxpayers, substitute 110% (of the tax liability shown on the prior year's tax return) for 2002 and subsequent, 112% for 2001 and 110% for 2000.

    3. Specific instructions for computing the ES penalty are in IRM 20.1.3, Estimated Tax Penalties.

21.6.3.4.2.3.2  (10-01-2007)
ES for Decedents

  1. Deceased taxpayers are liable for ES payments due on installment due dates occurring prior to the date of death.

  2. When the primary taxpayer on a joint return is the decedent:

    1. The TC 150 posts with a CCC "F" and filing status 2.

    2. The secondary taxpayer account (if not currently on Master File) is established with a generated TC 000, blocking series 999.

    3. The generated TC 000 is resequenced for one cycle.

    4. One cycle after the TC 150 posts on the primary decedent's account the computer automatically transfers credit-elect and/or payment(s).

  3. Special handling may be required.

    If And Then
    A return is filed showing the primary taxpayer as deceased with credit-elect requested The secondary (surviving spouse) account was not established during the settlement cycle A "CR EL DECD" transcript generates.
    A return is filed showing the primary taxpayer as deceased with ES tax payments on the subsequent tax period The secondary account was not established during the settlement cycle A "DECD ES CR" transcript generates.
    Computer transcript "CR EL DECD" or "DECD ES CR" generates The secondary account is not established within two cycles of the transcript 1. Input TC 000.
    2. Transfer the credit-elect, payment(s), and/or subsequent ES tax payment(s) to the surviving spouse's account.
    Computer transcript "DECD ES CR" generates The secondary account is established 1. Transfer subsequent ES tax payment(s) to the surviving spouse's account.

    Note:

    The surviving spouse should be:

    1. Sent a Form 1040-ES, Estimated Tax For Individuals, package.

    2. Advised to remit future ES tax payments under his or her own SSN.

    3. Reminded to update his or her name with SSA (if CC INOLE indicates a discrepancy).

21.6.3.4.2.3.3  (10-01-2007)
ES Joint Allocation

  1. Use the following table for ES payments and joint allocation issues:

    If And Then
    Taxpayer requests to have all or a portion of ES payments credited to his/her individual account You determine the taxpayer made separate ES payments (request the ES voucher, if necessary) Transfer the appropriate ES credit to the separate account.
    Taxpayer requests to have all or a portion of ES payments credited to his/her individual account You determine the taxpayer made joint ES payments Advise the taxpayers they must allocate the payments between themselves.
    Taxpayer has been previously advised the payments must be allocated Both taxpayers cannot agree on an allocation of the joint payments Advise taxpayer to submit a computation indicating the allocation of the ES credit in proportion to each spouse's separate tax.
    Taxpayer cannot provide an allocation of joint payment You can determine allocation of payments per ratio of each spouse's separate tax Transfer the allocated ES credit to taxpayer's account. (Apply in four equal installments, unless directed otherwise.)
    Taxpayer submits computation with the allocation   Transfer the allocated ES credit to taxpayer's account. (Apply in four equal installments, unless directed otherwise.)
    Taxpayer resides in a community property state   Because state law determines if income is separate or community property state designated community property income is allocated equally (50%) between taxpayers.

21.6.3.4.2.3.4  (10-01-2007)
ES Form 1041-T (Trusts)

  1. A trust fiduciary may elect to treat any amount of ES payment(s) for any taxable year of the trust as a payment made by the beneficiary of the trust.

    Caution:

    Except for backup withholding, withheld income tax may not be passed through to beneficiaries on either a Schedule K-1 or Form 1041-T.

    1. TC 290 .00, if no tax change is required.

    2. To transfer the credit appropriately, refer to IRM 21.7.4.4.1.12, Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries.

    3. Use the appropriate SC, RC(s), and blocking series.

  2. For information on balance due notices on IMF accounts involving Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries, credit transfers, see IRM 21.7.4.4.1.12.4, Balance Due Notices on IMF Accounts.

21.6.3.4.2.3.5  (10-01-2007)
Forms 1041-T Filed by Electing Small Business Trusts (ESBTS)

  1. Income Tax Regulations section 1.641(c)-1(a) provides guidelines that an ESBT is treated as two separate trusts for purposes of determining income tax. For complete instructions regarding ESBTs, refer to IRM 21.7.4.4.1.1.3, Types of Trusts.

21.6.3.4.2.4  (05-04-2007)
Excess Social Security and RRTA Tier I Tax Credits

  1. Employees are subject to Social Security tax and the equivalent portion of the RRTA Tier I Tax based on various wage limitations:

    YEAR MAXIMUM SOCIAL SECURITY WAGES PERCENT
    EMPLOYEE TAX W/H    		 MAXIMUM
    SOCIAL
    SECURITY TAX W/H
    2006 $94,200 6.20 $5,840.40
    2005 $90,000 6.20 $5,580.00
    2004 $87,900 6.20 $5,449.80
    2003 $87,000 6.20 $5,394.00
    2002 $84,900 6.20 $5,263.80
    2001 $80,400 6.20 $4,984.80
    2000 $76,200 6.20 $4,724.40

  2. Employees are subject to the employee portion of Medicare tax (shown separately on Form W-2, Wage & Tax Statement), at the rate of 1.45%. There is no wage base limit for Medicare tax. All wages are subject to the tax. Thus, there is no excess Medicare tax credit.

  3. For withholding purposes, the above Social Security tax (and equivalent portion of the RRTA Tier I tax) maximum applies separately with respect to each employer for whom an employee works. If an employee works for one employer and receives the maximum Social Security wages and also works for another employer in the same calendar year, the second employer is also required to deduct Social Security tax from the employee's wages up to the maximum Social Security tax.

  4. If more than the maximum Social Security tax (or equivalent portion of the RRTA Tier I tax) is deducted from the wages of the employee, the employee can receive a credit for the Social Security tax or RRTA Tier I withheld in excess of the maximum Social Security tax or RRTA Tier I tax. This credit is available only if such withholding is the result of the employee working for two or more employers. This credit is taken on the back of Form 1040, U.S. Individual Income Tax Return, payments section.

  5. If an employee has more than the maximum Social Security or RRTA Tier I taxes deducted from his or her total wages, appropriate action depends on the information that has been entered on the Forms W-2 received by the employee.

    If Then