Who Must Pay Estimated Tax?
Now you know what estimated tax is, let's
discuss who must pay estimated tax to keep the IRS happy and
the taxpayer penalty free. First of all, if you never paid
estimated tax, don't panic. Some taxpayers are not required to
pay estimated tax.
Who must pay estimated tax?
If a taxpayer owes taxes in the previous tax
year, then the taxpayer may have to pay estimated tax this year
if both rules are satisfied.
the taxpayer expects to owe at least $1,000 in tax
for the current tax year after subtracting
withholding and credits
the taxpayer expects his or her withholding and
credits to be less than the smaller of:
90% of the tax to be shown on this year's
current tax return, or
100% of the tax shown in the previous year's
tax return for the whole 12 months.
I did not owe any taxes last year, do I
have to pay estimated tax?
If you did not owe the IRS any tax last year
and you are a US citizen or US resident for the whole year,
plus your last tax year was for the whole 12 months, then you
don't have to pay estimated tax.
Example of the general rules to determine
who must pay estimated tax
If the taxpayer has tax liability in the tax
year 2007 (for no tax liability in 2007 see above) then
you think you will owe at least $1,000 in tax for
2008 after all the withholding and credits or
you expect that your withholding and credits are
less than the minimum of 90% of tax shown on the
2008 tax return or 100% of the tax shown in the
2007 tax year (12 months)
Then you will have to pay estimated tax.