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.
If you owed additional tax last year, you may have to make estimated payments in for this year. You must pay estimated taxes if :
- You expect to owe at least $1,000 in tax for the current tax year, 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 last year's return
- 90 percent of the tax shown on this year's return
Farmers and Fishermen
Farmers and fishermen who 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 is 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, crustacean, sponge, seaweed, shellfish or other form 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
Determining Estimated Tax
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 underpayment penalty.
The combined total withholding and estimated payments you make each quarter should be no less than 25% of either:
- 100% of the tax shown on your prior year return
- 90% of the tax shown on your current year return
Payments should be mailed with Form 1040-ES.
Payment Due Dates
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 next 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.