By What Is Estimated Tax? Estimated tax is the method used to pay tax on income that is not subject to withholding, such as self-employment income, interest, dividends, rents, alimony, etc. In addition, if you do not elect voluntary withholding, you should make estimated payments on other taxable income, such as unemployment income and the taxable portion of Social Security benefits.
Who Needs to Pay Estimated Tax? In most cases, you must make estimated payments if you expect to owe at least $1,000 in tax in 2011 and you expect your withholding and credits to be less than the smaller of:
- 90% of the tax shown on your 2011 tax return, or
- 100% of the tax shown on your 2010 tax return. Note that exceptions apply for higher income taxpayers (see below). Further, if you did not file a 2010 tax return or if your 2010 return did not cover the full 12 months, the 100% rule does not apply.
Special Rules
Higher Income Taxpayers. If your adjusted gross income for 2010 was more than $150,000 ($75,000 if your filing status for 2010 is married filing separately), substitute 110% for 100% in Rule 2. This rule does not apply to farmers or fishermen.
Farmers and Fishermen. If at least two-thirds of your gross income for 2010 or 2011 is from farming or fishing, your required annual payment is the smaller of:
- 66% (.6667) of your total tax for 2011, or
- 100% of the total tax shown on your 2010 return. (Your 2010 tax return must cover all 12 months.)
Questions?
Don’t hesitate to contact us if you’re not sure whether you need to pay estimated tax. We’ll evaluate your situation and let you know.