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 ?
The lack of communication makes it difficult to calculate the portion of estimated tax payments that should be assigned to each spouse.
Behavioral economists believe that investing an estimated tax payment that is not immediately due requires self-control.
As a result, many individuals must project their current year income for estimated tax purposes throughout the year on the possibility that they might be subject to disqualification from existing safe harbor provisions.
Electronic payment requirement - New law requires that individuals who make a 2009 estimated tax or extension payment larger than $20,000, or with total 2009 tax liabilities of more than $80,000, must make all future payments electronically.
Caution should be taken with using Form 1040X or 1120X overpayments to pay the current year's estimated tax payments.
The estimated tax is payable in four installments by individuals and corporations.
The tool figures small weekly set-asides needed to stay estimated tax compliant and avoid penalties -- each $19 a week set-aside (on average) equals $1,000 at tax time
Taxpayers who do not have their taxes withheld (or do not have enough withheld) may have to make estimated tax payments.
For corporate taxpayers affected by the attacks, those who face an estimated tax payment after Sept.
The service provides information for up to 25 estimated tax payments made on an account.
Suggest that income tax withholdings be increased or additional estimated tax payments be made to avoid a large balance due in April.

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