Do I need to pay estimated taxes?

It depends on many factors like your income and your withholdings, or tax payments.

If at filing time, you have not paid enough income taxes through withholding or quarterly estimated payments, you may have to pay a penalty for an underpayment of taxes.

If you are an employee and your withholdings are enough to cover your taxes than you likely do not have to pay estimated payments.  If the withholding are not enough or you have income from self-employment, dividends, capital gains, or other income, then maybe you should consider making estimated payments.

Whether or not you should come’s down to the penalties that you could incur if you don’t make estimated payments.  The following are the rules for assessing underpayment penalties.  If you answer NO to ALL of the follow questions you may want to consider making estimated payments.

  1. Do you expect to owe less than $1,000 in taxes after year end?
  2. Do you expect your federal income tax withholding to be at least 90 percent of the tax that you will owe?
  3. Do you expect that your income tax withholding will be at least 100 percent of the tax on your previous year’s return? Or, if your adjusted gross income is over $150,000 do you expect that your income tax withholding will be at least 110 percent of the tax you owed in tax for the previous year?