The IRS requires that companies withhold and pay taxes
before the end of the year. This is done by
estimating the taxes that you would owe at the end of
the year and making scheduled payments throughout the
year.
Estimated tax is the method
used to pay tax on income that is not subject to
withholding. This includes income from self-employment,
interest, dividends, alimony, rent, gains from the sale
of assets, prizes and awards. You also may have to pay
estimated tax if the amount of income tax being withheld
from your salary, pension, or other income is not
enough.
If
you do not pay enough through withholding or estimated
tax payments, you may be charged a penalty. If you do
not pay enough by the due date of each payment period
you may be charged a penalty even if you are due a
refund when you file your tax return.
Learn more about estimating taxes from the
IRS website.
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