We'll make it easy for you to figure out if you have to pay estimated taxes and if so, how much.
Figuring when and how to pay
If you're an employee, your employer withholds taxes from every paycheck and sends the money to the IRS, and probably to your state government as well. This way you pay your income taxes as you go. And, if you're like most wage earners, you get a nice refund at tax time.
Do I need to pay estimated taxes?
That depends on your situation. The rule is that you must pay your taxes as you go.
If at filing time, you have not paid enough income taxes through withholding or quarterly estimated payments, you may have to pay a penalty for underpayment.
Which option should I choose?
That depends on your situation.
The safest option to avoid an underpayment penalties is to aim for "100 percent of your previous year's taxes." If your previous year's adjusted gross income was more than $150,000 (or $75,000 for those who are married and filing separate returns last year), you will have to pay in 110 percent of your previous year's taxes to satisfy the "safe-harbor" requirement. If
you satisfy either test, you won't have to pay an estimated tax penalty, no matter how much tax you owe with your tax return.
If you expect your income this year to be less than last year and you don't want to pay more taxes than you think you will owe at year end, you can choose to pay 90 percent of your estimated current year tax bill. If the total of your estimated payments and withholding add up to less than 90 percent of what you owe, you may face an underpayment penalty. So you may want to avoid cutting your payments too close to the 90 percent mark to give yourself a little safety net.
If you expect your income this year to be more than your income last year and you don't want to end up owing any taxes when you file your return, try to make enough estimated tax payments to pay 100 percent of your current year income tax liability.
How should I figure what I owe?
You need to come up with a good estimate of the income and deductions you will report on your federal tax return.
Consider paying with your refund
What if I don't pay?