Estimated Tax
If a taxpayer does not have sufficient withholding from wages and pensions to cover the tax liability for the year, he/she could be subject to underpayment penalties. Self-employed taxpayers and those with substantial investment or other income frequently find themselves in this position. Quarterly estimated tax payments provide a means of prepaying the anticipated tax liability as a way to avoid the penalties. Generally, penalties can be assessed if a taxpayer’s prepayments (withholding and estimated tax payments) are not within $1,000 or 90% of the tax owed on their return.
