Who Pays Estimated Taxes?
Estimated taxes are generally paid on income that is not subject to tax withholdings, or when tax withholdings are not sufficient to cover expected taxes on income. Certain careers or sources of income are more likely to require quarterly estimated tax payments than others.
Most employees who have federal and state income taxes, Medicare taxes, and Social Security withheld from income as part of payroll generally do not have to pay estimated taxes on that income. These withholdings can be seen at the end of the year on W-2 statements. However when an employee has additional sources of income, such as a side consulting business, rental property income, or significant stock transactions or dividend payments, estimated tax payments may be required.
Sole proprietors and general partners are generally not employees of their business, according to IRS laws, and are treated as self-employed owners of the business. Consequentially, self employed owners generally make estimated tax payments to cover income taxes associated with any business profits as well as self employment taxes. Easy Estimated Taxes can make managing your estimated tax payments simple.
Below is a list of income sources where income withholdings are uncommon, which generally means quarterly estimated tax payments should be made:
- Interest & Dividends
- Capital gains on stock earnings
- Rental property income
- Prizes & Awards
- Gambling Winnings
- Pension/Retirement Income