Estimated Income Tax for Individuals

Q. What is the Estimated Income tax?

A. Income tax is a pay-as-you-go tax. This means that you must pay taxes as you earn or receive income during the year

There are two ways to do it…

Withholdings

Estimated Tax

  • If you are an employee, your employer most probably withholds income tax from your payrolls and pay it in your name.
  • If you do not pay your tax through withholding (or do not pay enough) and/or,
  • If you have taxable non-wage income (business income, dividends, interests, capital gains, royalties, rents…)

Then you may need to make quarterly estimated tax payments.

Q. Why should I pay estimated tax? Is it not enough to wait and file my tax returns paying the balance due?

A. Because if you do not pay enough by the due date of each payment you may be charged a penalty even if you are due a refund when you file your tax returns.

Q. When shall I pay the estimated tax?

A. Generally, payment of estimated tax is due on: April 15, June 15, September 15 of the current fiscal year and, January 15 of the following.

Q. How much should I pay?

A. An easy way to figure out how much to pay is to take your previous year tax payments (the amount you paid when you filed your tax returns) and divided by four: take those as your quarterly installment payments and they will probably cover your tax liabilities unless you earned an unexpected income.

The alternative, (for first time filers, for instance) is to project the amount of income you expect to receive and apply Tax Rates and deductions/credits.