We realize that when it comes to taxes it feels like there's a whole new
language to learn. In an effort to make estimated taxes a little easier
to understand, we've put together the follwing list of terms and
definitions.
Estimated tax - If you do not pay your tax through withholding, or do not pay enough tax that way, you may have to pay estimated tax. People who are in business for themselves generally will have to pay their tax this way. Also, you may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rent, and royalties. Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.
Credit for withholding and estimated tax - When you file your 2009 income tax return, take credit for all the income tax withheld from your salary, wages, pensions, etc., and for the estimated tax you paid for 2009. Also take credit for any excess social security or railroad retirement tax withheld.
Underpayment penalty - If you did not pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty. In most cases, the IRS can figure this penalty for you.
Withholding - If you are an employee, your employer probably
withholds income tax from your pay. Tax also may be withheld from
certain other income, such as pensions, bonuses, commissions, and
gambling winnings. The amount withheld is paid to the IRS in your name.
Share this page using your favorite social bookmarking tool:
