No matter where your income is coming from, you have to pay taxes on it. The IRS expects to receive tax payments on your income as you earn it, not just at the end of the fiscal year. Some employed people will have their taxes withheld from their paychecks and sent right to the IRS every pay period. Others will need to make these tax payments on their own in the form of estimated payments taxes.
What is estimated payments tax?
Estimated payments tax is a method of paying taxes on income that is not subject to withholding taxes. This income includes any money made from business earnings, rent, dividends, interest, self-employment, and other sources. The IRS requires estimated payments to be made every quarter, usually in four equal installments.
If you don’t pay your estimated taxes in full, then you’ll have to make a bigger payment to the IRS when you file your federal tax return. If you make a bigger payment then necessary on your estimated tax, then you will receive the excess amount as a tax return. This works in a similar way that withholding tax works.
Who pays estimated taxes?
There are many different factors that determine whether an individual needs to pay estimated taxes. Generally speaking, if your tax liability is $1,000 or more every year, you are expected to make estimated payments. The following types of people are typically required to make estimated tax payments:
- Self-employed or sole proprietor owners: If you have income from your own business, you will need to make estimated payments if your tax liability is more than $1,000 for the year. This is true whether you have a part-time or full-time enterprise.
- Partners, corporations, and S corporation shareholders: Business ownership earning also typically require estimated payments. In the case of corporations, estimated tax payments have to be made if the corporation is expected to have at least $500 in tax liability.
- Tax payers who owe from the previous year: If you owed taxes at the end of last year, you probably didn’t have enough money withheld from your paychecks, or you had other income that increased your liability. This shows the IRS that you should be making estimated payments to make up the difference.
In the 2017 fiscal year, the city-wide taxable property for New York City grew beyond one trillion dollars, a 9.8% increase from 2016. No matter where your taxable income is coming from, you’ll need to pay estimated payments tax if you don’t have taxes withheld from a regular paycheck. For more information about estimated payments, contact the professional tax accountants at George Dimov CPA.