What can I do to make sure I will not owe the IRS on my 2004 income tax return?

You can either increase the amount of income tax withheld from your pay or make estimated tax payments for 2004. You may change the amount of income tax withheld from your pay by filing a new Form W-4, Employee's Withholding Allowance Certificate. Form 1040ES, Estimated Tax for Individuals, has a worksheet to see if you need to make estimated tax payments.

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How do I know if I have to file quarterly individual estimated tax payments?

Estimated tax payments can be used to pay Federal income tax, self-employment tax, and household employment tax. To estimate if you need to pay tax on income not subject to withholding or on other income from which not enough tax is withheld, you need to calculate if the total tax you'll owe on your annual income tax return will be covered by the amount of tax you have already had either:

withheld from wages and other payments, or
paid in earlier estimated payments for the year, or
credited to your account from adjustments or overpayments to previously filed returns.

Generally, you should make estimated tax payments if you will owe tax of $1,000 or more, after withholding and credits, and 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 current tax return, or
100% of the tax shown on your prior year's tax return, if your prior year's tax return covered all 12 months of the year. However, if your prior year's adjusted gross income exceeded $150,000, or $75,000 if you filed a separate return from your spouse, then you must pay 110% instead of 100% of last year's tax. (Note: the percentages change depending on the tax year. Refer to Publication 505, Tax Withholding and Estimated Tax.)

Estimated tax requirements are different for farmers and fishermen. Publication 505, Tax Withholding and Estimated Tax, provides more information about these special estimated tax rules and about estimated tax in general. Get Form 1040ES, Estimated Tax for Individuals, to help you figure your estimated tax liability for 2004.

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How do I calculate the amount of estimated tax I will owe?

You should get Form 1040ES, Estimated Tax for Individuals and complete the worksheet on page 4, to help you figure your estimated tax liability.

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Do self-employment taxes need to be paid quarterly or yearly?

Self-employment tax is paid by making quarterly estimated tax payments which include both income tax and social security tax.

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When are the quarterly estimated tax returns due?

Your first estimated tax payment is usually due the 15th of April. 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, and January 15th of the following year.

If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or legal holiday. For example, a payment due Saturday, January 15, 2005 will be on time if you make it by Tuesday January 18, 2005. Note: Monday January 17, 2005 is a legal holiday.

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I was self-employed for the first half of the year and made estimated tax payments. Now, I am a wage earner and my employer withholds taxes. Must I continue to make estimated tax payments?

In general, you may owe a penalty for 2003 if the total of your withholding and estimated tax payments did not equal at least the smaller of:

90% of your 2003 tax, or
100%* of your 2002 tax. (Your 2002 tax return must cover a 12-month period.) If your timely and correct estimated tax payments plus the Federal withholding from your wages meet the estimated tax requirements shown above, you will not need to make any additional payments for estimated tax, nor will you need to inform the IRS of the change.

*If the total amount of your withholding and estimated tax payments equalled 100% of your 2002 income tax liability, you will not be subject to the failure to pay estimated tax penalty. However, not making additional estimated tax payments may mean that you have a large income tax liability when you file your income tax return. (If you are a higher income taxpayer with a AGI of more than $150,000 ($75,000 if your filing status is married filing separate)), substitute 110% for 100% if last year is 2002. Note: the percentage change depending on the tax refer to Publication 505 , Tax Withholding and Estimated Tax.