Typically employees have taxes withheld by their employer throughout the year. For taxpayers with income from interest, dividends, alimony, rent, partnerships, self-employment and capital gains may need to make estimated payments. Taxpayers with this scenario can avoid making estimated tax payments by adjusting Form W-4 and rely on their employer's payroll department to withhold additional taxes.
In general, you must make estimated payments during the tax year if you expect to owe at $1,000 in tax for 2011 after subtracting withholding and credits, and you expect your withholding and credits to be less than the smaller of:
- 90% of the tax shown on your 2011 tax return; or
- 100% of the tax shown on your 2010 tax return.
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