The federal tax system is based on a pay-as-you-go plan. This means the tax is paid as
income is earned or received. Tax is generally withheld from your wages or salary before
you get it, and may also be withheld from other types of income such as pensions and
unemployment compensation if requested. However, tax is generally not withheld from income
such as alimony, interest, dividends, rental income, self-employment income, and capital
gains. You may be required to pay estimated tax on these types of income. Estimated tax is
the method of paying tax on income not subject to withholding and on other income from
which not enough tax is withheld. You do not have to make estimated tax payments if you
expect your 1998 tax return will show a refund, or a balance due to IRS of less than $500.
Generally, you should make estimated tax payments for 1998 if you expect to owe tax of
$500 or more, after withholding and credits, and you estimate that the total amount of tax
withheld and your credits will be less than the smaller of:
- 90% of the tax to be shown on your 1998 tax return, or
- 100% of the tax shown on your 1996 tax return, if your 1997 tax return covered all 12
months of the year and your adjusted gross income is $150,000 or less or $75,000 or less
if you are married filing a separate return.
Get Form 1040ES to help you figure your
estimated tax liability for 1998.
Your first estimated tax payment for 1998 is due April 15th. You may pay the entire
year's estimated tax at that time, or you may pay your estimated tax in four payments.
The four payments are due April 15th, June 15th, September 15,1998, and January 15,
1999. You may have to pay a penalty if you do not pay enough tax through withholding or
estimated tax payments, or if you fail to make required estimated tax payments by the due
dates. Estimated tax payments can be used to pay federal income tax, self-employment tax,
and household employment tax. Topic 306 provides additional
information on the estimated tax penalty.
Estimated tax requirements are different for farmers and fishermen. Publication 505
provides more information about these special estimated tax rules and about estimated tax
in general.
You can order Publication 505, Tax Withholding and Estimated
Tax, by calling 1-800-829-3676.
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