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.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
References in periodicals archive ?
This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017.
Taxpayers using this method can defer the payment of estimated tax by carefully timing when a gain or other source of income is realized.
Individual taxpayers must adequately withhold from their wages and/or make estimated tax payments evenly throughout the year.
If your income is not evenly distributed over the year, then making estimated tax payments is more complex.
"People who wait until the last minute can rely on Official Payments to make sure their estimated taxes are officially paid.
(6a) ARRA 2009 provided that certain individuals could meet the estimated tax payment requirements for 2009 by paying 90% of the prior year's taxes.
Self-employed persons (and some employees) are generally required to file an estimated tax return and pay the estimated tax themselves, in either a lump sum or in installments.
The amount received from the July estimated tax bill will appear as a credit against the actual bill.
Also, for many taxpayers who claimed the Chin lax Credit last year, the Treasury mailed checks as an advance payment of the credit's increase, The new tax law also lowered the tax rates for long term capital gains and qualifying dividends, allowing taxpayers to reduce their estimated tax payments for the year following May 2003.
Creating additional complexities and record keeping requirements is the state's estimated tax regime imposed on pass-through entities, interest, and royalty expense disallowances, and requirement that New York state income tax be paid by nonresident individuals at the time of certain real property transfers.

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