The federal income tax is a pay–as–you–go tax. This means
the tax must be paid on income as it is received. Tax is generally withheld
from your wages or salary before you receive it, and may also be withheld
from other types of income such as pensions and unemployment compensation
if requested. However, tax is generally not withheld from income such as alimony,
interest, dividends, rental income, self–employment income, and capital
gains. You may be required to pay estimated tax on these types of income.
Estimated tax is the method of paying tax on income not subject to withholding
and on other income from which not enough tax is withheld. Generally, you
do not have to make estimated tax payments if your prior year's tax return
will show no tax liability.
Generally, you should make estimated tax payments for the tax year if you
will owe more than the amount specified by law, after withholding and credits,
and the total amount of tax withheld and your credits will be less than the
smaller of:
- 90% of the tax to be shown on your current year's tax return, or
- 100% of the tax shown on your prior year's tax return, if your prior year's
tax return covered all 12 months of the year. However, if your prior year's
adjusted gross income exceeded the amount specified by law for your filing
status for the current year, then your tax withheld and credits must total
110% instead of 100% of your prior year's tax.
Refer to Form 1040-ES (PDF) to figure your
estimated tax liability for the current year.
Your first estimated tax payment for each year is due April 15th. You may
pay the entire year's estimated tax at that time, or you may pay your estimated
tax in four payments.
The four payments are due April 15th, June 15th, September 15, of the tax
year and January 15, of the following year. If the due date falls on a Saturday,
Sunday, or legal holiday, the due date is delayed until the next business
day. You may have to pay a penalty if you do not pay enough tax through withholding
or estimated tax payments, or if you fail to make required estimated tax payments
by the due dates. Estimated tax payments are used to pay all the taxes on
your return, including federal income tax, self–employment tax, and
household employment tax. Topic 306 provides additional information
on the estimated tax penalty.
Estimated tax requirements are different for farmers and fishermen. Publication 505 , Tax Withholding and Estimated Tax, provides more information
about these special estimated tax rules and about estimated tax in general.
Refer to Publication 505, Tax Withholding and Estimated Tax.
