calculator-178127_1280Estimated tax payments are quarterly payments made by taxpayers who have income but no tax withholdings during the year.

Self-employed taxpayers, people with investment income, and people with a large amount of other income may need to make estimated tax payments.

Compare this to an employee who has wages from a job. Taxes are withheld from those wages, so a taxpayer in that situation likely won’t need to worry about estimated tax payments.

When that employee files their tax return, the withholding helps cover the tax owed, often generating a refund or at the very least, lessening the amount of additional tax the taxpayer has to shell out.

But someone who’s self-employed doesn’t have “wages” and thus has no withholdings. Estimated tax payments are a way of cushioning the blow at tax time.

Example

John is self-employed. His income for the year results in a tax liability of $15,000. Since John has no “wages” for withholding to be taken from, he has two choices: 1) come up with $15,000 at tax time, or 2) make estimated tax payments to cover his tax liability and lessen the amount that he has to shell out at once.

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”