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Estimated Tax

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Estimated tax is tax that a self-employed individual or a company must estimate and pay to the Internal Revenue Service. For non-self-employed people, taxes are withheld by the employer and then paid to the IRS each pay period. For the self-employed, such regularity is not required, though they must pay their estimated tax themselves. To pay estimated tax, one must first project one's earnings for the year, then calculate the respective portion for each quarter. Estimated tax must be paid four times per year, as long as there is income earned. One pays one's estimated tax with IRS Form 1040ES. If not enough estimated tax is paid, a penalty will be levied. The calculations to determine whether a penalty must be paid on estimated tax will involve comparisons to the previous year's taxes paid.



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