What Are Estimated Tax Payments

What are estimated taxes?

You're required to pay estimated tax if you receive income from which tax isn't withheld, including income from self-employment, investments and alimony, and your tax (after subtracting credits and withholding) is expected to be $1,000 or more. Here are a few good things to know about estimated tax payments:

The payments are due April 15, June 15, Sept. 15 and Jan. 15.

If you fail to pay enough on each installment due date, you may be subject to the penalty for underpayment of estimated tax even if your return shows a refund.

If you pay in as much as your tax liability for the previous year, you can pay your balance due without penalty when you file your return, regardless of the amount. See below for an exception if your prior-year income was high.

How much do I pay?

As part of your year-end planning, compare your projected year-end tax payments with your expected tax liability. If your payments are expected to be less than 90% of current-year tax, you generally will have to increase your withholding or make estimated tax payments. However, if your payments are made timely and will be at least as much as your prior-year tax liability, you're probably safe from the penalty. But if your prior-year adjusted gross income was more than $150,000 ($75,000 if Married Filing Separately), you'll have to pay 110% of your prior year tax liability to avoid the penalty. Figure your estimated tax with Form 1040-ES - Estimated Tax for Individuals.

Withholding Taxes

Tax withheld from your paycheck is considered to be paid evenly throughout the year, which means extra tax withheld late in the year can make up for earlier underpayments. If you have a job, you can file a new Form W-4 with your employer to withhold extra amounts from the final paychecks of the year so you're not subject to the penalty when you file your return.

Underpayment of Estimated Taxes

If you do not pay enough estimated tax and are subject to the penalty, don't automatically pay it. There are several exceptions to the penalty. Information can be found in the instructions for Form 2210.