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 ?
Taxpayers can use IRS Direct Pay to quickly pay an individual tax bill or make an estimated tax payment directly from a checking or savings account at no cost.
In 2014, the couple expect to have more income than in 2013 so they use the safe-harbor method of making estimated tax payments and pay a total of $435,000 in estimated tax.
If your income is not evenly distributed over the year, then making estimated tax payments is more complex.
6) ARRA 2009 provided that certain individuals could meet the estimated tax payment requirements for 2009 by paying 90% of the prior year's taxes.
However, the household worker, even though classified as an employee, must still file an estimated tax return and pay the estimated tax currently.
And for corporations: The installment due date for 25% of any corporate estimated tax payment otherwise due in September 2003 has been changed to Oct.
First, in equilibrium taxpayers' estimated tax payment decision will depend upon the uncertainty about their true tax liability, and the cost from overpayment (the taxpayer's cost of capital) or underpayment (penalty interest) of installments of estimated tax.
In any of the three preceding tax years, the taxpayer must have either made an estimated tax payment or been assessed a penalty for failure to make an estimated tax payment; and
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.
In tax practice, CPAs occasionally encounter self-employed clients who have difficulty keeping up with their quarterly estimated tax payments.
1, 2010, the estimated tax payment percentages have changed for individuals and corporations.
For tax years beginning in 2009 only, the American Recovery and Reinvestment Act of 2009 (ARRA) reduced the amount of estimated tax that individual taxpayers with income from small businesses must pay.

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