Estimated Tax

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Estimated Tax

Federal and state tax laws require a quarterly payment of estimated taxes due from corporations, trusts, estates, non-wage employees, and wage employees with income not subject to withholding. Individuals must remit at least 100 percent of their prior year tax liability or 90 percent of their current year tax liability in order to avoid an underpayment penalty. Corporations must pay at least 90 percent of their current year tax liability in order to avoid an underpayment penalty. Additional taxes due, if any, are paid on taxpayer's annual tax return.

Typically, non-wage earners pay estimated tax since their incomes are not subject to withholding tax to the same extent as the income of a salaried worker. Persons who receive a certain level of additional income, apart from their salaries, must also pay estimated tax.

The calculation and payment of estimated tax are preliminary stages to the filing of a final Income Tax return. Under federal and most state laws, estimated tax is paid in quarterly installments. The tax paid is applied to the tax owed when the taxpayer files a final return. Any overpayment of estimated tax will be refunded after the filing of the final return. If no tax is owed, a taxpayer is still required under federal law, and many state laws, to file a final return. When tax is due upon the filing of the final return, the taxpayer must pay the outstanding amount. Depending upon the amount due and the reasons for the miscalculation, a taxpayer might be liable under federal and state law for interest imposed upon the deficiency, as well as being subject to a penalty.

References in periodicals archive ?
Ashby explained that the recent legislation included two "suspension period" provisions, providing that R&D expenditures incurred during the suspension periods are taken into account in subsequent periods "through the filing of an amended return, an application for expedited refund, an adjustment of estimated taxes, or other means that are allowed by the Code.
Americans participate in a pay-as-you-go tax system through withholding and estimated taxes.
With this change, taxpayers will be required to use the IRS's Electronic Federal Tax Payment System (EFTPS) to make federal tax deposits of various withheld and estimated taxes.
For tax years beginning in 2009, in computing estimated taxes, an individual uses 90% of the tax shown on the individual's return for the preceding year instead of the 100% required by Sec.
Occasionally we list multiple extra items--such as financial planning, a yearend tax planning meeting, additional services in connection with the sale of rental property, researching cost basis of mutual funds sold, calculation of S corporation basis, preparation of the next year's estimated taxes, prior years' income annualization for estimated tax penalty reduction, alternative minimum tax credit calculation or any of a few dozen other items.
Current law effectively requires large corporations to overpay their estimated taxes, without the benefit of interest, or in order to avoid an underpayment penalty under section 6655 of the Code.
Beginning with 1992, certain taxpayers may no longer escape a penalty for underpaying estimated taxes by basing estimated tax payments and withholding on 100 percent of the prior year's taxes (in tax jargon, the 100 percent safe harbor).
Commencing at the end of October, the Commonwealth of Virginia will begin accepting credit-card payments for business bills and estimated taxes.
This is usually done for clients with lower income than the previous year who do not (and should not) want to pay estimated taxes based on the protective prior-year tax.
The provision provides that no penalties will be assessed for underpayment of estimated taxes owed prior to April 15, 2003, if the underpayment is due to this change in the law.
The Supreme Court disagreed and held that IRC section 6513(b) required that the withholding and estimated taxes be considered paid on April 15, 1989, which was outside the lookback period.
In addition to filing a separate corporate tax return, a FSC must also separately pay estimated taxes.

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