Quarterly estimated taxes are payments made four times a year to avoid late or underpayment penalties. Self-employed individuals and employers may pay taxes from various sources of income. The calculation to determine quarterly estimated taxes may include filing categories and tax brackets based on annual income levels. The system for paying quarterly estimated taxes can vary between countries, and penalties may apply for late payments.
Quarterly estimated taxes are essentially payments made to a regional taxing authority four times a year. Typically, an individual or employer submits quarterly estimated taxes to the taxing authority to avoid a late or underpayment penalty. The person responsible for paying quarterly estimated taxes is usually a self-employed person as an independent contractor or sole proprietor of a business. Generally, it is that person’s sole responsibility to pay the taxes. However, employers may withhold a percentage of the tax liability and make estimated payments on behalf of employees.
In general, people pay estimated taxes from various types of sources of income. Paying taxes is the total obligation of a person who receives compensation for work as a self-employed person. Quarterly estimated taxes are also paid from interest and dividends paid from investments. A person who owns property and collects rental payments may also have to report the payments as income and pay taxes.
Most employers withhold estimated tax liabilities from employees before issuing a paycheck. Employees can fill out a tax form that includes marital status, dependents, and other details used to determine tax liability. In some cases, employees may also pay estimated taxes to cover the possibility that the employer does not withhold enough.
Because self-employment income can fluctuate, the total amount of tax liability for the year can change. The person has to pay quarterly estimated taxes based on projected annual income to avoid a penalty for not paying enough tax. In general, the person calculates the income obtained during the three months of each quarter based on a percentage established by the tax authority.
The calculation to determine quarterly estimated taxes may include filing categories and tax brackets based on annual income levels. The category and range of taxes may differ depending on the tax laws in the respective country. In general, the categories may include projected income for the current year and tax payments for the prior year.
Quarterly tax payments are typically for local government funded social programs. Funded programs may vary between countries. In the US, these taxes can go toward retirement payments known as social security, the Medicare health insurance program, and federal income tax payments.
The system for paying quarterly estimated taxes can also vary between countries. In some countries, various forms applicable to a person’s marital status are completed and mailed to the tax authority with the payment. With other countries, a person can use an online system to report income and make quarterly payments based on the tax schedule.
Some countries may provide the option to file online or by mail, whichever is convenient for the taxpayer, based on payment schedules. The tax authority can schedule due dates that a person must meet when making payments. Penalties may apply for late or late payments received after those dates.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
