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. You do not have
to make estimated tax payments if your 2003 tax return will show a refund.
Generally, you should make estimated tax payments for 2004 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:
- 90% of the tax to be shown on your 2004 tax return, or
- 100% of the tax shown on your 2003 tax return, if your 2003 tax return
covered all 12 months of the year. However, if your 2003 adjusted gross income
exceeded $150,000, or $75,000 if you will file a separate return from your
spouse for the year 2004, then your tax withheld and credits must total 110%
instead of 100% of your 2003 tax.
Refer to Form 1040ES (PDF) to
figure your estimated tax liability for 2004.
Your first estimated tax payment for 2004 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, 2004 and
January 18, 2005. 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. Topic 306 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.
