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The self-employed and others who have income
not subject to withholding must pay quarterly estimated tax
payments. The taxpayer is subject to an underpayment penalty if
enough estimated tax is not paid by each of the due dates.
Estimated tax payments must be made by sole proprietors (and others) if
after subtraction their withholding and credits, they expect to owe
$1,000 or more at the end of the tax year AND if their withholding and
tax credits are expected to be less than the smaller of (1) 90 percent
of the tax liability for the current year or (2) 100 percent of the tax
liability for prior year.
People often make the argument that they cannot foresee the future
and so cannot estimate their tax liability. To avoid penalties,
they can send in quarterly payments for the current year which total at
least their prior year's tax liability. Form 1040-ES consists of a
worksheet, tax rate schedules, and four payment vouchers. A
voucher, with its payment, is due April 17, June 15, September 15, and
January 15. The January 16th payment need not be made if the tax
return is filed with any balance due by January 31. |
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