Estimated Taxes

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go:

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Withholding: If you are an employee, your employer withholds income tax from your pay.

Estimated Taxes: If you do not pay your tax through withholding or if you do not pay enough that way, you might have to pay estimated tax. People who are self employed or who receive rental, interest, dividend, royalties or capital gain income usually have to pay estimated taxes.

Estimated Tax Requirements: In general, you must pay estimated tax if both of the following apply:

1. You expect to owe at least $1,000 in tax after subtracting your withholding and credits
2. You expect your withholding and credits to be less than the smaller of:
2. a) 90% of the tax to be shown on your tax return, or
   b) 100% of the taxes shown on your prior year tax return (110% if your adjusted gross income for the prior year was greater than $150,000).

How to Pay Estimated Taxes: There are four required quarterly payments.

• April 15th-- For income received between January and March
• June 15th—For income received between April and May
• September 15th—For income received between June and August
• January 15th—For income received between October and December.

Estimated taxes may be paid by mailing a check, payable to the US Treasury, and a payment voucher: Form 1040-ES. Mailing instructions, including addresses, for Form 1040-ES are on this form which you may download from the IRS website (WWW.IRS.GOV).

Or, you may pay electronically through EFTPS (Electronic Federal Tax Payment System). Sign up on the EFTPS website. (WWW.EFTPS.GOV).

Penalty for Underpaying Estimated Taxes: For 2005, the penalty for underpayment of estimated tax is 6% for the number of days the underpayment remained unpaid from April 15, 2005 through September 30, 2005 and 7% from October 1, 2005 through April 15, 2006.

Please see IRS Publication 505 for special rules for Farmers and Fishermen or for more information.