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Why Am I Paying Estimated Taxes?

When clients receive their tax return from their preparer, they may find estimated payment vouchers (1040 ES). Taxes can be paid by withholding from paychecks and making estimated payments. If there is a balance due when filing the return, a W-4 (Employee’s Withholding Certificate) might be completed to increase the amount withheld from your paycheck.

If you receive income such as interest, capital gains, alimony, prizes and awards, you may have to make estimated payments. If you own a business, depending upon the type of entity formed, you may also have to make estimated payments. If you receive a W-2 as an employee, but do not have enough withheld from your paycheck, you may be charged a penalty. This would generate a form 2210 form (Underpayment of Estimated Tax by Individuals, Estates and Trusts) with your tax return.

Who Does Have to Pay

If a tax of $1,000 or more is owed, individuals, sole proprietors, partners and sub S shareholders would usually have to make estimated tax payments.

Corporations also may be subject to estimated payments if a tax of $500 or more is due when they file their corporate taxes due on 3/15. There is a worksheet provided on the IRS website to help determine if estimated payments are required.

Who Does Not Have to Pay Estimated Tax?

Not every taxpayer is required to pay estimated taxes. If you receive a paycheck and a W-2 at the
end of the year, you probably will not have to pay estimated taxes. When you start such a job, you will
be required to complete a W-4 (Employee’s Withholding Certificate). If you find that you owe too much
tax at filing time, you may have to change the number of exemptions, or have an additional amount
withheld from your paycheck.

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