Estimated Tax and Payments
What is estimated tax?
Your estimated tax is the amount of tax liability you expect to have for a tax year.
When to make estimated tax?
Estimated tax is usually made before the tax year begins or early in the tax year.
You are required to pay tax on most of your income as you earn or receive it during the
Am I required to make estimated tax payments?
You may need to make estimated tax payments if you do not pay enough tax on your income as you
earn it through withholding. Withheld taxes are payments made by a payer (a pension fund or employer) from income
due to you. (Withholding is discussed in Chapter 7.)
If you are in business for yourself, you will generally have to pay your tax with estimated tax
payments. You may have to make estimated tax payments if you receive income such as interest, dividends, alimony,
rent and capital gain from which there usually is no withholding. You may also have to make estimated tax payments
if the amount of income tax being withheld from your salary or other inocme is not enough to cover the tax you must
pay at year end.
Estimated tax payments are used to pay income and self employment tax, as well as other taxes
reported on your tax return.
Self employment tax is the social security and Medicare tax for self employed individuals. Other
taxes include the penalty on a premature distribution from an IRA, and social security and Medicare tax on
unreported tip income.
If you do not cover enough of your calculated tax through withholding and/or by making estimated
tax payments, you may be charged a penalty. Enter the total of the estimated tax payments you made during the tax
year on line 65 of Form 1040.