Hi, I’m Thomas, and I work for the IRS.
Our U.S. income tax operates on a pay-as-you-go basis.
That means we pay our tax as we earn or receive income during the year, either by having taxes withheld or by making estimated tax payments each quarter.
If you have income that’s not subject to withholding, you probably need to make these quarterly payments.
This includes self-employment income, interest, dividends, capital gains or rental income.
Here’s the bottom line.
If you expect to owe at least a thousand dollars, you may need to make estimated tax payments.
And, if you pay too little tax during the year, you may have to pay a penalty.
Normally, you pay estimated tax in four equal quarterly payments.
But there are some exceptions.
So, if you have income from anywhere that doesn't withhold tax for you, it's a good idea to see if estimated taxes apply to your situation.
For more information, go to IRS.gov/form1040es and take a look at our estimated tax form.