How can I make a one-time income tax-prepayment to the US Treasury?
"You can make estimated tax payments on Form 1040-ES.  Most people who make such payments need to do it quarterly because the typical reasons for making estimated payments is something like self-employment income that a person will get throughout the year.  If you have a one-time event like a single, large sale of stock, however, there's nothing wrong with doing it just one quarter out of the year. When it comes time to file your taxes, part of the calculate is whether you were timely quarter-by-quarter not just for the entire year, so if you do have a big ""one-time"" event mid-year, don't wait until the end of the year to file an estimated payment.  Of course, if the event is at the end of the year, then you can make it a 4th quarter estimated payment."
Yes, you can do what you are contemplating doing, and it works quite well. Just don't get the university's payroll office too riled by going in each June, July, August and September to adjust your payroll withholding! Do it at the end of the summer when perhaps most of your contract income for the year has already been received and you have a fairly good estimate for what your tax bill will be for the coming year. Don't forget to include Social Security and Medicare taxes (both employee's share as well as employer's share) on your contract income in estimating the tax due. The nice thing about paying estimated taxes via payroll deduction is that all that tax money can be counted as having been paid in four equal and timely quarterly payments of estimated tax, regardless of when the money was actually withheld from your university paycheck. You could (if you wanted to, and had a fat salary from the university, heh heh) have all the tax due on your contract income withheld from just your last paycheck of the year! But whether you increase the withholding in August or in December, do remember to change it back after the last paycheck of the year has been received so that next year's withholding starts out at a more mellow pace. "Yes, it is, but first let me address this sentence: my current withholding on my W4 is already at 0 so I can't make it   lower You definitely can make it lower. On W4, in addition to the allowances (that what you meant by ""already at 0""), there's also a line called ""additional withholding"". There, you put the dollar amount that you want your payroll to withhold from your paycheck each pay period. So the easiest way to ""send"" a one time payment to the IRS, if you're a W2 employee, would be to adjust that line with the amount you want to send, and change it back to 0 next pay period. You can also send a check directly to the IRS - follow the instructions to form 1040-ES. That is exactly what that form is designed to be used for." "It's likely you don't have to make estimated tax payments if this is your first year of contracting (extra income), and your existing salary is already having taxes withheld. If you look at the 1040-ES: General Rule In most cases, you must pay estimated tax for 2014 if both  of the   following apply. This is easier to understand if you look at the worksheet.  Look at line 14b/14c and the associated instructions.  14b is your required annual payment based on last year's tax.  14c is the lesser of that number and 14a, so 14b is your ""worst case"".  14c is the amount of tax you need to prepay (withholding counts as prepayment). I'm going to apply this to your situation based on my understanding, because it's not easy to parse:" "The pure numbers answer says you want the refund to be close to $0.  You can even argue, as some answers have, that you want to try to maximize the payment without receiving any sanctions for underpaying during the year. If you trace the money, it's easy to see why.  Let's say you get a paycheck.  Tag some of the dollars for Uncle Sam.  These are the dollars that, eventually, will be given to the IRS.  Now consider the following scenarios: From the raw numbers like this, its clear that you lose utility by setting yourself up for a large refund check.  The money was yours the entire time, but you chose to give it to Uncle Sam instead. However, the raw numbers are only part of the puzzle.  If you're a cold steely-gazed numbers person, they're the part that matters.  When the billionares are playing their tax evasion games, this is the only thing they are paying attention to.  However, real humans have a few psychological reasons they may choose to lose utility in terms of raw dollars in exchange for psychological assistance: These attitudes exist, and may be ideal for any one person.  Obviously the financially savvy answer of ""minimize your refund"" is the ideal answer from a dollars and cents perspective, but its up to you to see whether that attitude is right when you account for all of the non-measurable things, like stress.  In general, I would lead anyone to ""minimize your refund,"" but I would be remiss if I didn't include the very real psychological reasons people choose to deviate from it." This is wrong.  It should be  or  Now, to get back to self-employment tax.  Self-employment tax is weird.  It's a business tax.  From the IRS perspective, any self-employed person is a business.  So, take your income X and divide by 1.0765 (6.2% Social Security and 1.45% Medicare).  This gives your personal income.  Now, to calculate the tax that you have to pay, multiply that by .153 (since you have to pay both the worker and employer shares of the tax).   So new calculation  or they actually let you do  which is better for you (smaller).   And your other calculations change apace.   And like I said, you can simplify Q1se to  and your payment would be  Now, to get to the second quarter.  Like I said, I'd calculate the income through the second quarter.  So recalculate A based on your new numbers and use that to calculate Q2i.   or  Note that this includes income from both the first and second quarters.  We'll reduce to just the second quarter later.  This also has you paying for all of June even though you may not have been paid when you make the withholding payment.  That's what they want you to do.   But we aren't done yet.  Your actual payment should be  or  Because Q2ft and Q2se are what you owe for the year so far.  Q1ft + Q1se is what you've already paid.  So you subtract those from what you need to pay in the second quarter.  In future quarters, this would be  All that said, don't stress about it.  As a practical matter, so long as you don't owe $1000 or more when you file your actual tax return, they aren't going to care.  So just make sure that your total payments match by the payment you make January 15th.   I'm not going to try to calculate for the state.  For one thing, I don't know if your state uses Q1i or Q1pi as its base.  Different states may have different rules on that.  If you can't figure it out, just use Q1i, as that's the bigger one.  Fix it when you file your annual return.  The difference in withholding is going to be relatively small anyway, less than 1% of your income. "That's a very clear explanation, thanks! So a few additional things if anyone will humor my curiosity...  1. By ""one-time"" tax, does that mean a company that has, say, $5B overseas could bring that back into the US and just be taxed $500M, then keep the remaining $4.5B?  2. Could a company choose a percentage of their overseas money to transfer into the US? Like, only bring in 8% of that $5B ($400M) and be taxed $40M, while keeping all the rest outside the US? Or would it be mandatory to bring it all over?  3. Would most companies just start that same practice of routing to tax havens again after this tax is implented?" You have two different operations going on: They each have of a set of rules regarding amounts, timelines, taxes, and penalties. The excess money can't be recharacterized except during a specific window of time.  I would see a tax professional to work through all the details. I don't believe you can do that. From the IRS: Finally, certain types of property are specifically excluded from Section 1031 treatment. Section 1031 does not apply to exchanges of: I highlighted the relevant items for emphasis. You should probably get a professional tax advice, as it is very specific to the Philipines tax laws and the US-Philippine tax treaty. What I know, however, is that if it was the other way around - you paying a foreigner coming to the US to consult you - you would be withholding 30% of their pay for the IRS which they would be claiming for refund on their own later. So if the US does it to others - I'm not surprised to hear that others do it to the US.  Get a professional advice on what and how you should be doing. In any case, foreign taxes paid can be used to offset your US taxes using form 1116 up to some extent. "You can simply use the previous year's tax liability as your basis for payments. Take the amount of tax you owed the previous year, divide by four, and use that amount for your estimated payments. As long as you're paying 100% of what you owed last year, you won't have any penalty. Except if your AGI is above a certain limit ($150k for married filing jointly in 2011), then you have to pay 110%. See IRS Pub 505 for details (general rule, special rule, under ""Higher Income Taxpayers""). (H/T to @Dilip Sarwate for pointing out the 110% exception in a comment below.)" Like-kind of exchanges have a list of requirements. The IRS has not issued formal guidance in the matter. I recommend to be aggressive and claim the exchange, while justifying it with a good analogy to prove good faith (and persuade the IRS official reading it the risk of losing in tax court would be to high). Worst case the IRS will attempt to reject the exchange, at which point you could still pony up to get rid of the problem, interest being the only real risk. For example: Past tax court rulings have stated that collectable gold coins are not like kind to gold bars, and unlike silver coins, but investment grade gold coins are like kind to gold bars. So you could use a justification like this: I hold Bitcoin to be like-kind to Litecoin, because they use the same fundamental technology with just a tweak in the math, as if exchanging different grades of gold bars, which has been approved by tax court ruling #xxxxx. Note that it doesn't matter whether any of this actually makes sense, it just has be reasonable enough for you to believe, and look like it is not worth pursuing to an overworked IRS official glancing at it. I haven't tried this yet, so up to now this is a guess, but it's a good enough guess in my estimation that I will be using it on some rather significant amounts next year. There is a shortcut you can use when calculating federal estimated taxes.  Some states may allow the same type of estimation, but I know at least one (my own--Illinois) that does not. The shortcut: you can completely base your estimated taxes for this year on last year's tax return and avoid any underpayment penalty.  A quick summary can be found here (emphasis mine): If your prior year Adjusted Gross Income was $150,000 or less, then   you can avoid a penalty if you pay either 90 percent of this year's   income tax liability or 100 percent of your income tax liability from   last year (dividing what you paid last year into four quarterly   payments). This rule helps if you have a big spike in income one year,   say, because you sell an investment for a huge gain or win the   lottery. If wage withholding for the year equals the amount of tax you   owed in the previous year, then you wouldn't need to pay estimated   taxes, no matter how much extra tax you owe on your windfall. Note that this does not mean you will not owe money when you file your return next April; this shortcut ensures that you pay at least the minimum allowed to avoid penalty. You can see this for yourself by filling out the worksheet on form 1040ES.  Line 14a is what your expected tax this year will be, based on your estimated income.  Line 14b is your total tax from last year, possibly with some other modifications.  Line 14c then asks you to take the lesser of the two numbers.  So even if your expected tax this year is one million dollars, you can still base your estimated payments on last year's tax. You have made a good start because you are looking at your options. Because you know that if you do nothing you will have a big tax bill in April 2017, you want to make sure that you avoid the underpayment penalty. One way to avoid it is to make estimated payments. But even if you do that you could still make a mistake and overpay or underpay. I think the easiest way to handle it is to reach the safe harbor. If your withholding from your regular jobs and any estimated taxes you pay in 2016 equal or exceed your total taxes for 2015, then even if you owe a lot in April 2017 you can avoid the underpayment penalty. If you AGI is over 150K you have to make sure your withholding is 110% of your 2015 taxes. Then set aside what you think you will owe in your bank account until you have to pay your taxes in April 2017. You only have to adjust your withholding to make the safe harbor. You can make sure easily enough once your file this years taxes. You only have to make sure that you reach the 100% or 110% threshold. From IRS PUB 17 Who Must Pay Estimated Tax If you owe additional tax for 2015, you may have to pay estimated tax   for 2016. You can use the following general rule as a guide during the year to   see if you will have enough withholding, or if you should increase   your withholding or make estimated tax payments.  General rule.    In   most cases, you must pay estimated tax for 2016 if both of the   following apply. You expect to owe at least $1,000 in tax for 2016, after subtracting your withholding and refundable credits. You expect your withholding plus your refundable credits to be less than the smaller of: a. 90% of the tax to be shown on your 2016 tax return, or b. 100% of the tax shown on your 2015 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers , later).   Your 2015 tax return must cover all 12 months. Reminders Estimated tax safe harbor for higher income taxpayers. If your 2015   adjusted gross income was more than $150,000 ($75,000 if you are   married filing a separate return), you must pay the smaller of 90% of   your expected tax for 2016 or 110% of the tax shown on your 2015   return to avoid an estimated tax penalty. I think the IRS doc you want is http://www.irs.gov/publications/p550/ch04.html#en_US_2010_publink100010601 I believe the answers are: "How can I avoid this, so we are taxed as if we are making the $60k/yr that we want to receive?  You can't. In the US the income is taxed when received, not when used. If you receive 1M this year, taking out 60K doesn't mean the other 940K ""weren't received"". They were, and are taxable. Create a pension fund in the corporation, feed it all profits, and pay   out $60k/yr of ""pension"". I doubt that the corporation could deduct a   million a year in pension funding. You cannot do that. You can only deposit to a pension plan up to 100% of your salary, and no more than $50K total (maybe a little more this year, its adjusted to inflation). Buy a million dollars in ""business equipment"" of some sort each year   to get a deduction, then sell it over time to fund a $60k/yr salary. I   doubt such a vehicle exists. If there's no real business purpose, it will be disallowed and you'll be penalized. Your only purpose is tax avoidance, meaning you're trying to shift income using your business to avoid paying taxes - that's illegal. Do crazy Section 79 life insurance schemes to tax-defer the income.   The law caps this so I can only deduct < $100k of the $1 million   annually, and there are other problems with this approach.\ Yes. Wouldn't go there.  Added: From what I understand, this is a term life insurance plan sponsored by the employer for the employee. This is not a deferral of income, but rather a deduction: instead of paying your term life insurance with your own after tax money, your employer pays with their pre-tax. It has a limit of $50K per employee, and is only available for employees. There are non-discrimination limitations that may affect your ability to use it, but I don't see how it is at all helpful for you. It gives you a deduction, but its money spent, not money in your pocket. End added. Do some tax avoidance like Facebook does with its Double Irish trick,   storing the income in some foreign subsidiary and drawing $60k/yr in   salary to be taxed at $60k/yr rates. This is probably cost-prohibitive   for a $1MM/yr company. You're not Facebook. What works with a billion, will not work with a million. Keep in mind that you're a one-man business, things that huge corporations like Google or Facebook can get away with are a no-no for a sole-proprietor (even if incorporated). Bottom line you'll probably have to pay the taxes. Get a good tax professional to help you identify as much deductions as possible, and if you can plan income ahead - plan it better."