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6.   Estimated Tax

Estimated tax is a method used to pay tax on income that isn't subject to withholding. This income includes self-employment income, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards.

Income tax generally is withheld from pensions and annuity payments you receive. However, if the tax withheld from your pension (or other) income isn't enough, you may have to pay estimated tax. If you don't pay enough tax through withholding, by making estimated tax payments, or both, you may be charged a penalty.

Who Must Make Estimated Tax Payments

If you had a tax liability for 2016, you may have to pay estimated tax for 2017. In most cases, you must pay estimated tax for 2017 if both of the following apply.

  1. You expect to owe at least $1,000 in tax for 2017, after subtracting your withholding and refundable credits.

  2. You expect your withholding and refundable credits to be less than the smaller of:

  • 90% of the tax to be shown on your 2017 tax return, or

  • 100% of the tax shown on your 2016 tax return. The 2016 tax return must cover all 12 months.

If all of your income will be subject to income tax withholding, you probably don't need to make estimated tax payments.

For more information on estimated tax, see Pub. 505.

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