Posted on April 12, 2006 at 17:25:48:
Who owes estimated taxes? Almost anyone with non-wage income – from investments, Social Security, rents, IRA distributions, gambling winnings or more. As long as the total tax bill is $1,000 more than withheld taxes, estimated taxes must be paid.
To avoid underpayment penalties, estimated and withholding together must total 90 percent of the tax due on the year’s tax return or 100 percent of the tax owed on the year before. However, if the prior year’s adjusted gross income topped $150,000 on a single or joint return, or $75,000 for married filing separately, estimated taxes must total 110 percent of the prior year’s tax.
The quarterly payments generally must be equal in size. If, at the end of the year, you find your estimated taxes underpaid, you can greatly increase withholding at the end of the year or beef up the final payment due in January. If your income is not consistent from quarter to quarter, you can annualize payments, that is, you can pay taxes each quarter based on the actual income you received that quarter.