The federal tax system is based on a pay-as-you-go plan. This means
the tax is paid as income is earned or received. Tax is generally
withheld from your wages or salary before you get 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. You do not have to make
estimated tax payments if you expect your 1997 tax return will show a
refund, or a balance due to IRS of less than $500.
Generally, you should make estimated tax payments for 1997 if you
expect to owe tax of $500 or more, after withholding and credits, and
you estimate that 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 1997 tax return, or
2.100% of the tax shown on your 1996 tax return, if your 1996 tax
return covered all 12 months of the year and your adjusted
gross income is $150,000 or less or $75,000 or less if you are
married filing a separate return.
Get Form 1040ES to help you figure your estimated tax liability for
1997. Your first estimated tax payment for 1997 is due April 15. 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 15, June 16, September 15, 1997, and
January 15, 1998. 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 can be used to pay federal income tax,
self-employment tax, and household employment tax. Topic 306 provides
additional information on the estimated tax penalty.
Estimated tax requirements are different for farmers and fishermen.
Publication 505, Tax Witholding and Estimated Tax, provides more
information about these special estimated tax rules and about
estimated tax in general.
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