The second quarter estimated tax payment is due in less than two weeks (June
15). Do you know if you need to make estimated tax payments?
The federal
income tax system is a pay-as-you-go tax system. That means you pay taxes as you
earn income throughout the year. If you are an employee of a company, you pay
taxes through withholding from your paycheck. If you are self employed, you pay
taxes by making estimated tax payments.
The general rule is that you must
make estimated tax payments if you expect to owe at least $1,000 in tax for the
current tax year, after subtracting your withholding and tax credits, AND if you
expect your withholding and tax credits to be less than the smaller of:
*
90% of the tax liability on your current year tax return, or * 100% of the tax
liability on your prior year's tax return
Example: If your tax liability
for 2006 was $1,500, but you expect to owe $2,000 this year because your
business did better than the previous year, then the minimum you would need to
pay in to avoid underpayment penalties is the lesser of $1,800 (90% of your
current year tax liability) or $1,500 (100% of last year's tax
liability).
The easiest way to estimate your quarterly estimated tax
payments is to estimate your tax liability for the entire year and divide that
amount by four. However, if you don't receive your income evenly throughout the
year, you may use the annualized income installment method. A worksheet and
instructions are available in IRS Publication 505, Tax Withholding and Estimated
Tax.
The due dates for estimated tax payments are:
For the period:
Jan 1 - March 31 Due date: April 15
For the period: April 1 - May 31 Due
date: June 15
For the period: June 1 - August 31 Due date: September
15
For the period: September 1 - December 31 Due date: January 15 the
next year
If the 15th falls on a holiday or weekend day, the due date
will be the next business day.
You can pay your estimated taxes by using
payment vouchers (Form 1040-ES), or by using the Electronic Federal Tax Payment
System (http://www.eftps.com/eftps/). In
addition, if you have an overpayment from a previous year, you can apply the
overpayment to your next year's estimated tax.
Disclaimer: All information on this site is provided for informational purposes only! By no means is any
information presented herein intended to substitute for the advice provided to you by any health care or other professional
or organization.
