What types of earners have to pay estimated taxes to the IRS?
Today's user question: What types of earners have to pay estimated taxes to the IRS?
Answer: First, it's important to understand what estimated tax is. Simply put, estimated tax is what you use to pay your taxes if your income/earnings are not subject to withholding. This is a common practice among the self-employed and may also be used for a variety of other reasons such as dividends and interest earned on investments and savings, rental payments, prizes, alimony, etc. In some cases, if your employer is not withholding enough from your salary you may also need to pay estimated taxes.
Note that if you don't withhold or estimate enough in tax payments and make those payments by the due date each period, you may be penalized by the IRS (yes, I know this sounds unfair, and I agree that it is!).
You are required to pay estimated tax if you expect to owe the IRS at least $1000 in taxes for the current year and you believe that the withholding from your income subject to withholding tax, along with any credits, will be less than 90 percent of the tax to be shown on your current year's tax return or all of the tax shown on your previous year's tax return (whichever of the two is smaller).
The IRS has more information here.
Answer: First, it's important to understand what estimated tax is. Simply put, estimated tax is what you use to pay your taxes if your income/earnings are not subject to withholding. This is a common practice among the self-employed and may also be used for a variety of other reasons such as dividends and interest earned on investments and savings, rental payments, prizes, alimony, etc. In some cases, if your employer is not withholding enough from your salary you may also need to pay estimated taxes.
Note that if you don't withhold or estimate enough in tax payments and make those payments by the due date each period, you may be penalized by the IRS (yes, I know this sounds unfair, and I agree that it is!).
You are required to pay estimated tax if you expect to owe the IRS at least $1000 in taxes for the current year and you believe that the withholding from your income subject to withholding tax, along with any credits, will be less than 90 percent of the tax to be shown on your current year's tax return or all of the tax shown on your previous year's tax return (whichever of the two is smaller).
The IRS has more information here.
posted by Scott at
5:52 AM
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