What is Estimated Tax?
Estimated tax is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.). If you do not elect voluntary withholding, you should make estimated tax payments on other taxable income, such as unemployment compensation and the taxable part of your social security benefits.
Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments. If you are in business for yourself, you generally need to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.
If you don’t pay enough tax through withholding and estimated tax payments, you may have to pay a penalty. You also may have to pay a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.
Estimated tax requirements are different for farmers, fishermen, and certain higher income taxpayers. Publication 505, Tax Withholding and Estimated Tax, provides more information about these special estimated tax rules.
Who needs to pay Estimated Payments?
Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
You may have to pay estimated tax for the current year if your tax was more than zero in the prior year. See the worksheet in Form 1040-ES, Estimated Tax for Individuals for more details on who must pay estimated tax.
Please refer to the IRS Estimated Tax for more information.
What are Extension Payments?
If you have requested an extension or would like to file Form 4868 you are still responsible for your tax liability. At the time of filing you will need to indicate the total amounts paid with Form 4868.
Estimated Payments or Extension Payments on ProTaxPro.com
The Estimated Tax or Extension Payments page in ProTaxPro.com itemized the following:
- Total estimated payments
- Divorce Spouse's Social Security Number
- Total extension payments
- Total Form 1099 Tax Withheld