Taxpayers who have large sources of income not subject to withholding may need to make quarterly tax payments. Included could be a self-employed individual, or someone collecting rental income, alimony, gains from the sale of assets, prizes, interest, or dividends. The amounts received are taxable for income tax purposes and may be subject to employment taxes (discussed in Chapter 7, Income: Self-Employment, Rental, Partnership, and Other).

Whenever a taxpayer has $1,000 or more in taxes after deducting the amounts that are withheld for the year, estimated tax payments are required. Taxpayers can avoid this requirement by:

A taxpayer is required to make estimated tax payments once receiving income subject to income and employment taxes. The tax year is divided into four quarters and a taxpayer is expected to make payments for the income received in each quarter. Underpayments, even if in just one quarter, could result in a penalty.

It should be noted that while there is a form (1040-ES) to help taxpayers estimate the amount of income and payments for the year, no estimated tax return is submitted to the IRS. Instead, taxpayers make payments for estimated tax by (1) crediting last year’s overpayment (refund) to the next tax year, (2) sending in payments with a payment voucher 1040-ES, (3) using the Electronic Federal Tax Payment System, (4) by electronic funds withdrawal, or (5) by credit card using a pay-by-phone system. Most taxpayers making estimated payments send the voucher quarterly.

Go to Publication 17, Chapter 4 and read the section: Estimated Tax (to the end of the chapter).