Hi, I’m Mary Beth, and I work for the IRS.
Our income tax runs on a pay-as-you-go basis.
That means we pay our taxes as we earn or receive income during the year, either by having taxes withheld or by making quarterly estimated tax payments.
If you have income that’s not subject to withholding, you probably need to make these quarterly payments.
This includes, but is not limited to, self-employment income, interest, dividends, prizes, and rental income.
It may also include sharing economy income or other activities where you are not an employee, such as income you earn by renting a spare bedroom or other scenarios.
Generally, this income is taxable even if you don’t receive an income statement.
Normally, you pay estimated tax in four equal quarterly payments using form 1040-ES.
But there are some exceptions.
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.
So, if you have taxable income from any payer that doesn't withhold tax for you, check to see if estimated taxes apply in your situation.
Go to irs.gov/payasyougo to determine if you need to set up quarterly estimated tax payments or to consider increasing your withholding if you have an employer.