Tuesday's tax deadline is fast approaching, and while most people know exactly what their tax burden is, some people whose jobs aren't subject to withholding must pay estimated taxes.
People who pay estimated taxes don't have income that's not subject to withholding, and they generally pay them four times per year—April 15, June 15, Sept. 15 and Jan. 15 of the following year, according to the Internal Revenue Service.
According to the IRS, people who have income from sources like "self-employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards" might have to pay estimated taxes.
People must pay estimated taxes in 2012 if they expect to owe at least $1,000 in tax after subtracting withholding and tax credits and they expect withholding and credits to be less than either 90 percent of their 2012 taxes or 100 percent of the tax paid on their 2011 returns, whichever is smaller.
Sole proprietors, Partners and S Corporation shareholders usually have to make estimated tax payments if they expect to owe $1,000 or more in tax when they file their returns, according to the IRS.
Nevertheless, "special rules apply for farmers, fishermen, certain household employers and certain higher income taxpayers," according to the IRS.
To calculate estimated tax, people should use the worksheet in Form 1040-ES (Estimated Tax for Individuals) and include their expected gross income, taxable income, taxes, deductions and credits for the year, according to the IRS. The form includes instructions, worksheets, schedules and payment vouchers.
The IRS recommends people pay estimated taxes through the Electronic Federal Tax Payment System at IRS.gov. The taxes can also be paid by check or money order using the Estimated Tax Payment Voucher or by credit or debit card, according to the IRS.
People should be as accurate as possible when calculating estimated taxes and consider changes in their situation and recent tax laws, according to the IRS.
For more information, refer to Form 1040-ES and Publication 505 (Tax Withholding and Estimated Tax).
