The federal income tax is a pay-as-you-go tax. You must pay taxes as you earn or receive income throughout the year. If you earn income that is not subject to withholding, you will likely need to make estimated tax payments each quarter of the tax year.

Tax is generally withheld from wages, salaries, pensions, unemployment compensation, and other types of income before you receive it.

You can avoid making estimated tax payments by ensuring you are having enough tax withheld from these types of income before you receive it. See Form W-4 Withholding for more information regarding withholding.

If you owed additional tax in the prior tax year, you may have to make estimated payments in the current year. You must pay estimated taxes if :

• You expect to owe at least $1,000 in tax for 2007, after subtracting withholding and tax credits.
• You expect the total of your withholding and tax credits to be less than the smaller of:
  • 100 percent of the tax shown on your prior year's tax return
  • 90 percent of the tax shown on your current year tax return

Farmers and fishermen that expect to receive at least two-thirds of their gross income from farming or fishing activities may pay estimated tax in one installment.

Income from wages received as a farm employee are not considered farm income. Gross income from farming is derived from cultivating soil or raising agricultural commodities. This income includes:

• Income from operating a dairy, stock, bee, fruit, poultry, or truck farm
• Income from an orchard, range, nursery, plantation, ranch, or oyster bed
• Crop shares for use of land
• Gains from sales of draft, dairy, breeding, or sporting livestock
• Shares of income from a partnership or S-Corporation that derives income from farming

Gross income from fishing is derived from catching, harvesting, cultivating, or farming any kind of fish, crustaceans, sponges, seaweeds, shellfish, or other forms of aquatic vegetable or animal life. This income includes:

• Income for services as an officer or crew member of a fishing vessel
• Shares of income from a partnership or S-Corporation that derives income from fishing
• Income for services normally performed in connection with fishing, including:
  
  • Shore service as an officer or crew member of a fishing vessel
  • Services that are ordinary and necessary for the immediate preservation of the catch, including cleaning, icing, and packing 

To estimate the amount of tax you will owe, you must determine your expected adjusted gross income, taxable income, tax liability, deductions, and credits for the current tax year.

If your adjusted gross income exceeds $150,000, or $75,000 if your filing status is married filing separately, you must make payments of at least 110% of your prior-year tax liability. This rule does not apply to farmers and fishermen.

If you do not pay enough taxes through withholding and estimated payments, you may be subject to an underpayment penalty.

The combined total withholding and estimated payments you make each quarter should be no less than 25 percent of either:

• 100% of the tax shown on your prior year's tax return
•  90% of the tax shown on your current year tax return

Payments should be mailed with Form 1040-ES.

The first payment is due by April 15 of the current year. The remaining three payments are due by June 15 and September 15, and then January 15 of the following year. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. If you do not make your estimated payments by the due date you may be subject to penalty.

For more information see IRS Publication 505.