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 ?
If the taxpayer elects to apply an overpayment to the succeeding year's estimated taxes, the overpayment will be applied to unpaid installments of estimated tax due on or after the date(s) the overpayment arose in the order in which they are required to be paid to avoid an interest penalty for failure to pay estimated income tax for that particular tax year.
The proposal looks at estimated taxes over a three-year period, as opposed to the present regulations' focus on only two years.
Therefore, the IRS assessed penalties against the client for underpayment of estimated taxes and assessed interest for failing to pay tax from the original due date of the return through the extended due date.
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." He noted that where taxpayers claim research credits from the suspension period in excess of $1 million, the Joint Committee on Taxation's refund review procedures under section 6405 may be implicated.
Americans participate in a pay-as-you-go tax system through withholding and estimated taxes. Self-employed taxpayers fund their tax liability throughout the year by making quarterly payments on April 15, June 15, September 15 and January 15 of the following year.
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. The preamble to the proposed regulations notes that more than 97.5% of all federal tax deposits are already deposited electronically through EFTPS.
Although some firms say extensions spread the workload over the year, we feel they create unnecessary work; foster payment errors, including in the current year's estimated taxes; and hinder the planning process.
Self-employed taxpayers may have adjusted their estimated taxes to reflect the new brackets.
Make sure you have paid the proper amount of estimated taxes throughout the year, either through withholding or estimated tax payments.
What TEI proposed in its testimony is expunging the uncertainty inherent in the determination of taxable income from the process for the collection and payment of estimated taxes.(2) The annualization process for determining quarterly estimated tax payments, carried to its literal extreme, requires taxpayers to prepare five "mini" tax returns for their estimated tax payments plus their final return.(3) We believe that the estimated tax payment process for large corporations should be simplified.
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.
Many states, in order to collect revenue without having to pursue nonresidents for it, have begun requiring flow-through entities (for example, S corporations, partnerships and limited liability companies (LLCs)) to either withhold taxes or pay estimated taxes on behalf of their nonresident shareholders, partners and members (owners), respectively.

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