Do I Need To Pay Estimated Taxes?
Although your tax return is not "due" until April 15th of the following year,
you are generally required to prepay your tax during the year.
In order to avoid an underpayment penalty when filing your return, you must
pay in at least the lower of (1) 90% of your current year's tax liability or
(2) 100% of your previous year's tax liability all over again. (Note: If your
AGI last year was $150,000 or more - or $75,000 if married filing separately
- change the 100% figure to 110% for 2003.) These payments may be made by having
income tax withheld (in any proportion during the year), or by making four estimated
tax payments with Form 1040-ES.
If you need to recompute your withholding, obtain a copy of Form W- 4 from
your employer. This form contains a worksheet that allows for most
circumstances, and tells you what withholding status and how many
"withholding allowances" to claim. Note: that your status on Form W-4 could
very well be different than your marital status, and the allowances different
than the exemptions you are allowed to claim on your actual return. Form W-4
explains how this is done. Generally, if a couple is married filing jointly
and both work, the number of allowances they claim in total will be less than
they claim on the return itself.
If you have income that is not subject to withholding, and your tax shortfall
will be more than $1,000, you need to file Form 1040-ES and make estimated
tax payments during the year. These payments are due on April 15, June 15,
September 15 and on January 15 of the following year (If a payment date falls
on a weekend, the next Monday is the due date). The worksheet that
accompanies the form explains the calculations. Generally, each payment
should include the taxes you will owe for the period that ended the previous
month; for example, the June 15 payment is for the two months ending May 31.