The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go.

This publication explains both of these methods. It also explains how to take credit on your 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 making estimated tax payments, you may have to pay a penalty. Generally, the IRS can figure this penalty for you. This underpayment penalty, and the exceptions to it, are discussed in chapter 4.

Use your 2012 tax return as a guide in figuring your 2013 estimated tax, but be sure to consider the following.

Additional Medicare Tax. For tax years beginning after December 31, 2012, a 0.9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act compensation, and self-employment income over a threshold amount based on your filing status. You may need to include this amount when figuring your estimated tax. See the instructions for line 12 of the 2013 Estimated Tax Worksheet. For more information on Additional Medicare Tax, go to IRS.gov and enter “Additional Medicare Tax” in the search box.

Net Investment Income Tax. For tax years beginning after December 31, 2012, you may be subject to Net Investment Income Tax (NIIT). NIIT is a 3.8% tax on the lesser of net investment income or the excess of your modified adjusted gross income (MAGI) over the threshold amount. NIIT may need to be included when figuring estimated tax. See the instructions for line 12 of the 2013 Estimated Tax Worksheet. For more information on NIIT, go to IRS.gov and enter “Net Investment Income Tax” in the search box.

Medical and dental expenses. Beginning January 1, 2013, you can deduct only the part of your medical and dental expenses that exceed 10% of your adjusted gross income (7.5% if either you or your spouse is age 65 or older).

Income limits for excluding education savings bond interest increased. In order to exclude interest, your modified adjusted gross income (MAGI) must be less than $87,700 ($142,050 if married filing jointly or qualifying widow(er)).

Foreign earned income exclusion. The maximum exclusion has increased to $97,600.

Standard mileage rates. The rate for business use of your vehicle is increased to 56½ cents per mile. The rate for use of your vehicle to get medical care or move is increased to 24 cents per mile. The rate of 14 cents per mile for charitable use is unchanged.

Personal exemption increased for certain taxpayers. For tax years beginning in 2013, the personal exemption amount is increased to $3,900 for taxpayers with adjusted gross income at or below $300,000 if married filing jointly or qualifying widow(er), $275,000 if head of household, $250,000 if single, and $150,000 if married filing separately. The personal exemption amount for taxpayers with adjusted gross income above these thresholds may be reduced.

Limitation on itemized deductions. Beginning in 2013, itemized deductions for taxpayers with adjusted gross income above $300,000 if married filing jointly or qualifying widow(er), $275,000 if head of household, $250,000 if single, and $150,000 if married filing separately may be reduced.

Alternative minimum tax (AMT) exemption amount increased. The AMT exemption amount is increased to $51,900 ($80,800 if married filing jointly or qualifying widow(er); $40,400 if married filing separately).

Lifetime learning credit income limits. In order to claim a lifetime learning credit, your MAGI must be less than $63,000 ($127,000 if married filing jointly).

Retirement savings contribution credit income limits increased. In order to claim this credit, your MAGI must be less than $29,500 ($59,000 if married filing jointly; $44,250 if head of household).

Tax-free distributions from an IRA for charitable purposes. You can elect to treat a qualified charitable distribution (QCD) made in January 2013 as if it was made in 2012. Additionally, any portion of a distribution from an IRA contributed to a charity before February 1, 2013, can be treated as a QCD for 2012 if it meets certain requirements. See Publication 590, Individual Retirement Arrangements (IRAs), for more information.

Adoption credit or exclusion. The maximum adoption credit or exclusion for employer-provided adoption benefits has increased to $12,970. In order to claim either the credit or exclusion, your MAGI must be less than $234,580.

Increase in employee's share of payroll tax. Social security will be withheld from an employee’s wages at the rate of 6.2% (up from 4.2%) up to the social security wage limit of $113,700. There is no change to Medicare withholding.The same increase applies to net earnings from self-employment—the rate will be 12.4% (up from 10.4%) up to the social security wage limit of $113,700. In addition, the deduction for self-employment tax has been restored to 50%.

Earned income credit (EIC). You may be able to take the EIC in 2013 if:

Also, the maximum MAGI you can have and still get the credit has increased. You may be able to take the credit if your MAGI is less than the amount in the above list that applies to you. The maximum investment income you can have and get the credit has increased to $3,300.

Future developments. The IRS has created a page on IRS.gov for information about Publication 505 at www.irs.gov/pub505. Information about any future developments affecting Publication 505 (such as legislation enacted after we release it) will be posted on that page.

Social security (FICA) tax.  Generally, each employer for whom you work during the tax year must withhold social security tax up to the annual limit. The annual limit is $113,700 in 2013.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.