Should you be paying estimated tax? NYS Tax Department explains that if you don’t have tax withheld from your income or your financial circumstances have significantly changed, you may need to pay estimated tax to avoid penalties.
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The NYS Tax Department reports that nearly 467,000 individual taxpayers made a total of about $10.4 billion in estimated tax payments from April 1, 2015, through the end of March 2016.
Should you be making estimated tax payments too?
You may need to pay estimated tax to avoid penalties and interest charges if you:
- are self-employed (a consultant, entrepreneur, freelance worker, small business owner, etc.) and don’t have any or enough tax withheld from your income;
- receive a big salary boost, bonus, commission, or other cash windfall, or experience some other significant change in your financial circumstances; or
- receive taxable income not subject to withholding, such as pension or annuity income, capital gains, interest or dividend income, rental income, or if you’re subject to the State’s Metropolitan Commuter Transportation Mobility Tax.
“I encourage freelance or other independent workers, who may be unaware of their quarterly responsibility to pay estimated tax, to visit our estimated tax webpage to learn more,” said Commissioner Jerry Boone.
The deadline for the next quarterly estimated tax payment is June 15, 2016.
The easiest way to meet this tax obligation is to create an Online Services account so you can estimate the tax you owe, pay electronically, and check your balance. You can also review your payment history, which can help you avoid a common income tax filing error: reporting the wrong amount of estimated tax paid for the year.
If you don’t make required estimated tax payments, you could face underpayment penalties and interest charges. For more, see NYS Tax Department’s Interest and penalties page and the IRS’s Penalty for Underpayment of Estimated Tax.
IRS Publication 505, Tax Withholding and Estimated Tax.
Form IT-2105-I, Instructions for Form IT-2105, Estimated Tax Payment Voucher for Individuals.
Form IT-2105.9-I, Instructions for Form IT-2105.9, Underpayment of Estimated Tax by Individuals and Fiduciaries.