No matter where your income comes from, you must pay taxes on it. The IRS expects tax payments as you earn income, not just at the end of the year. Employed individuals typically have taxes withheld from their paychecks and sent to the IRS. However, others must handle these payments through estimated payments taxes.
What are estimated payments taxes?
Estimated payments taxes are for income not subject to withholding, like business earnings, rent, dividends, interest, and self-employment. The IRS requires these payments quarterly, usually in four equal installments.
If you don’t pay your estimated taxes in full, you’ll owe a larger amount when filing your federal tax return. Conversely, overpayments are refunded similarly to withholding taxes.
Who pays estimated taxes?
Several factors determine if you need to pay estimated taxes. Generally, if your tax liability is $1,000 or more per year, you must make these payments. The following typically need to pay estimated taxes:
- Self-employed or Sole Proprietors: If your business income exceeds $1,000 in tax liability for the year, estimated payments are required.
- Partners, Corporations, and S Corporation Shareholders: Business earnings usually need estimated payments. Corporations must pay if they expect at least $500 in tax liability.
- Taxpayers with Previous Year’s Owing: If you owed taxes last year, you likely didn’t have enough withheld or had additional income. This indicates a need for estimated payments.
In the 2017 fiscal year, NYC’s taxable property exceeded one trillion dollars, a 9.8% increase from 2016. Regardless of your income source, you’ll need to make estimated payments taxes if you don’t have withholding. For more information, contact George Dimov CPA.
