Tax Tips & Calculators
Income tax is a payasyougo system. If youacute;re an employee, you pay as you go through withholding.However if you´re selfemployed, you must make quarterly estimated tax payments for the amount you expect to owe the IRS. These payments should satisfy both your income and selfemployment taxes.
If you have other income, like W2 wages, that also lets you withhold enough to cover selfemployment taxes, you might not need to make estimated payments. However, if you receive a substantial amount of taxable income not subject to withholding, you should make estimated payments.
You might make estimated payments for income that´s not tax-free and comes from:
- Stock sales
- Personal residence sale
Estimated tax payments for 2012 are due:
- April 15, 2012
- June 15, 2012
- Sept. 15, 2012
- Jan. 15, 2013
You can make estimated tax payments using any of these methods:
- Apply your 2011 refund to your 2012 estimated tax.
- Mail a check or money order with Form 1040ES: Estimated Tax for Individuals.
- Use the Electronic Federal Tax Payment System (EFTPS) to submit payments electronically. Visit www.eftps.gov or call 18005554477 . You can make payments weekly, monthly, or quarterly. You can schedule payments up to 365 days in advance.
- Use your credit card by calling 8005554477 or going to your credit card provider´s web site. You´ll be changed a convenience fee for this service.
To learn more,see IRS Form 1040ES instructions to learn more.
You must make estimated tax payments and file Form 1040ES if both of these apply:
- Your estimated tax due is $1,000 or more.
- The total amount of your tax withholding and refundable credits will be less than the smaller of:
- 90% of your 2012 tax liability
- 100% of your 2011 tax liability
Special rules exist for higher income taxpayers. If your 2011 adjusted gross income (AGI) was more than $75,000 – $150,000 if married filing jointly – you must prepay 110% instead of 100% of the 2011 tax. You´ll need to do this to avoid a possible underpayment penalty for 2012.
Ex: Your 2011 tax liability was $3,800. At the beginning of 2012, you expect your 2012 tax to be $2,400, so you arrange to have a total of $2,200 withheld from your paycheck during the year. Then, in March, you sell some business assets, which gives you an additional $6,975 in income. This will increase your expected 2012 tax liability to $3,560.
You must pay 90% of the $3,560 you expect to owe for 2012, which is $3,204. Since you already arranged to have $2,200 withheld from your paycheck, you must make estimated payments totaling $1,004 ($3,204 – $2,200). Your options to avoid a penalty include:
- Make 4 estimated tax payments of $251 starting on April 15, 2012.
- Pay the entire amount of $1,004 on April 15, 2013
- Increase your withholding for the rest of 2012 so that you withhold an additional $1,004, for total withholding of $3,204.
To learn more about the estimated tax penalty, see the Underpayment of Estimated Tax tax tip.
People Who Read This Also Read
Related IRS Forms & Publications
- Form 1040-ES - Estimated Tax for Individuals
- Form 1041-ES - Estimated Income Tax for Estates and Trusts
- Form 1120-W - Estimated Tax for Corporations
- Form 2210 - Underpayment of Estimated Tax by Individuals, Estates and Trusts
- Form 2210 Instructions
- Form 2220 - Underpayment of Estimated Tax by Corporations
- Form 2220 Instructions
- Form W-4 - Employee's Withholding Allowance Certificate
- Publication 505 - Tax Withholding and Estimated Tax
- Publication 919 - How Do I Adjust My Tax Withholding?