Do I have to make estimated tax payments to the IRS?

Article Source: http://www.wwwebtax.com/payments/estimated_payments.htm

Tax must be paid as income is earned or received. Tax is generally withheld from your wages or salary before you get it, and tax may also be withheld from other types of income such as pensions and unemployment compensation if requested. Paying estimated tax is the method of paying tax on income not subject to IRS withholding and on other income from which not enough IRS tax is withheld.If you are going to owe the IRS tax for 2010 you can either increase the amount of tax withheld from your pay or make estimated tax payments. You may change the amount of tax withheld from your pay by filing a new Form W-4, Employee's Withholding Allowance Certificate. Form 1040-ES, Estimated Tax for Individuals, has a worksheet to see if you need to make estimated tax payments. Tax is generally not withheld from income such as alimony, interest, dividends, rental income, self employment income, and capital gains. You may be required to pay estimated tax on these types of income.  You do not have to make estimated tax payments if your 2010 tax return will show a tax refund, or a balance due of less than $1,000. Generally, you should make estimated tax payments for 2010 if you will owe the IRS tax of $1,000 or more, after tax withholding and tax credits, and the total amount of tax withheld and your tax credits will be less than the smaller of: 90% of the tax to be shown on your 2010 tax return; or 100% of the tax shown on your 2009 tax return, if your tax return covered all 12 months of the tax year. However, if your 2009 adjusted gross income exceeded $150,000, or $75,000 if you filed a separate tax return from your spouse, then you must pay 110% instead of 100% of last year's tax. The percentage for those with income that exceeds $150,000 in the tax years 1997 and thereafter is as follows : For tax year 1997 110 percent For tax year 1998 100 percent For tax year 1999 105 percent For tax year 2000 105 percent For tax year 2001 105 percent For tax year 2002 112 percent For tax year 2003 and later 110 percent You may have to pay a tax penalty if you do not pay enough tax paid through withholding or estimated tax payments to the IRS, or if you fail to make required estimated tax payments to the IRS by the estimated tax due dates below. Estimated tax payments can be used to pay federal income tax, self employment tax, and household employment tax. The underpayment tax penalty will not apply if you had no tax liability for 2009 and you were a U.S. citizen or resident for all of 2009 and your tax year included all 12 months of the year. Also, the tax penalty may be waived if: The failure to make estimated tax payments to the IRS was caused by a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the tax penalty; or You retired (after reaching age 62) or became disabled during the tax year a payment was due or during the preceding tax year, you had reasonable cause for not making the estimated tax payments, and the tax underpayment was not due to willful neglect. For estimated tax payments due on or before August 21, 1998, the tax penalty is waived to the extent your tax underpayment was created or increased by the IRS Restructuring and Reform Act of 1998. Get Form 1040ES to help you figure your estimated tax liability for 2010. A tax underpayment can be reduced or eliminated by making an additional tax payment to the IRS at any time during the tax year. Alternatively, request that your employer withhold additional tax from your wages for the remainder of the tax year. Any additional withholding tax will be treated as having been paid equally throughout the tax year for purposes of determining the tax underpayment penalty. If you choose this option, the increased tax withholding will continue until your employer is notified to revise the amount. Your first estimated tax payment to the IRS for 2010 is due April 15th. You may pay the entire year's estimated tax at that time, or you may pay your estimated tax in four payments. The four payments are due April 15th, June 15th, September 15, and January 15, 2011. Underpaying any tax installment may cause a tax penalty to be assessed, even though the total estimated tax payments for the tax year are adequate. If you made unequal estimated tax payments because your taxable income was received unevenly during the tax year, you may be able to avoid or lower the tax penalty by annualizing your income. Use Form 2210, Underpayment of Estimated Tax by Individuals and Fiduciaries, to see if annualizing would reduce or eliminate the tax penalty. Estimated tax payment requirements are different for farmers and fishermen. Estimated tax payments should not be sent with or be included in checks or money orders for payment of federal income tax with your tax return. Mail your estimated tax payments separately to the address shown in Where should I send my estimated payments?