Estimated Tax

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The federal income tax is a pay-as-you-go tax. This means the tax must be paid on income as it is received. Tax is generally withheld from your wages or salary before you receive it, and may also be withheld from other types of income such as pensions and unemployment compensation if requested. However, 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. Estimated tax is the method of paying tax on income not subject to withholding and on other income from which not enough tax is withheld. Generally, you do not have to make estimated tax payments if your 2004 tax return will show no tax liability.

Generally, you should make estimated tax payments for 2005 if you will owe tax of $1,000 or more, after withholding and credits, and the total amount of tax withheld and your credits will be less than the smaller of:
  1. 90% of the tax to be shown on your 2005 tax return, or
  2. 100% of the tax shown on your 2004 tax return, if your 2004 tax return covered all 12 months of the year. However, if your 2004 adjusted gross income exceeded $150,000, or $75,000 if you will file a separate return from your spouse for the year 2005, then your tax withheld and credits must total 110% instead of 100% of your 2004 tax.

Refer to Form 1040-ES (PDF) to figure your estimated tax liability for 2005.

Your first estimated tax payment for 2005 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, 2005 and January 17, 2006. You may have to pay a penalty if you do not pay enough tax through withholding or estimated tax payments, or if you fail to make required estimated tax payments by the due dates. Estimated tax payments are used to pay all the taxes on your return, including federal income tax, self-employment tax, and household employment tax. Penalty for Underpayment of Estimated Tax provides additional information on the estimated tax penalty.

Estimated tax requirements are different for farmers and fishermen. Publication 505 , Tax Withholding and Estimated Tax, provides more information about these special estimated tax rules and about estimated tax in general.

Refer to Publication 505, Tax Withholding and Estimated Tax.


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