What are estimated tax payments?
Many taxpayers have income from self-employment, dividends, interest, capital gains, rent, and royalties. The "pay as you go" system also applies to this income. If the tax due on this income exceeds certain limits, the taxpayer must make estimated tax payments on a quarterly basis. If estimated payments are not paid when they are required, a penalty could be imposed. This also applies if taxpayers do not have enough income tax withheld from their salary or wages.
Estimated tax includes the taxpayer's income tax and self-employment tax. Self-employment tax is the social security and Medicare taxes owed by self-employed workers.
The Refund and Amount of Tax Owed lesson has more information on estimated taxes.