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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 year.

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.


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