For many people, income tax payments are essentially automatic. Their employers withhold a portion of their wages from every check and make estimated payments to the state and federal governments. These taxpayers generally only need to file an annual income tax return to reconcile the payments they have made with the obligations they actually have.
Others have to play a more active role in ensuring their compliance with income tax regulations. They may need to make estimated quarterly payments to the government. They must then report those payments on their annual income tax return as a means of diminishing the final amount that they owe.
People in a number of different situations may need to file estimated quarterly income taxes. The three situations below are the most common.
1. Independent contractors
Some professionals go into business for themselves. They work as contractors for other companies and perform work on a contract basis.
These professionals typically need to make estimated quarterly payments every year after the first year that they become self-employed. Those estimated payments help ensure that they do not have an insurmountable balance due when they file their annual return.
2. Small business owners
Those running small businesses and professional practices have to file taxes for themselves and the companies that they operate. They typically need to make estimated quarterly payments on behalf of the business. Those filings may be in addition to their personal income tax obligations and the funds that they must withhold from the paychecks that they provide to their employees.
3. People with multiple streams of income
While employers withhold taxes on behalf of workers, people who have successful careers might also have alternate streams of income. They might rent out a property or receive dividends on previous investments.
People may owe a sizable amount in income taxes at the end of the year if their withholdings from their paycheck only reflect their wages and not their other sources of revenue. People who fail to file quarterly income taxes may ultimately owe more because they have to cover penalties and interest in addition to the base amount of taxes due.
Those trying to make sense of income tax law to comply with it or to respond to pending income tax controversies may need help understanding their rights and obligations. Business owners and others who are responsible for paying their own income taxes may need guidance to help ensure they don’t make mistakes that could increase what they owe and put them at risk of legal controversy.