Who Must Pay Estimated Tax

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you owed additional tax for the prior year (did not have enough withheld by employer), you may have to pay estimated tax for the current year.

General rule. In most cases, you must pay estimated tax for the current year if both of the following apply.

1) You expect to owe at least $1,000 in tax for the current year, after subtracting withholding and refundable

credits, and

2) You expect your withholding and refundable credits to be less than the smaller of:

a) 90% of the tax to be shown on your current year tax return, or

a) 100% of the tax shown on your previous year’s tax return, if your previous year’s return covered all 12 months.

Note: The percentage amounts may be different if you are a farmer, fisherman, or higher-income taxpayer.

Who Does Not Have to Pay Estimated Tax

If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings. To do this, file a new Form W-4 with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.

You do not have to pay estimated tax for the current year if you meet all three of the following conditions.
• You had no tax liability for the prior year,

• You were a U.S. citizen or resident for the whole year, and

• Your prior tax year covered a 12 month period.

You had no tax liability for the prior year if your total tax was zero or you did not have to file an income tax return.

Monday, October 13, 2014