QUESTION:
What are estimated tax payments?
ANSWER:
Estimated tax payments are paid quarterly to the IRS and often to your state to cover your expected income taxes for the year. The U.S. tax system uses a “pay-as-you-go” method, so taxes are due as you earn or receive income.
Estimated taxes include federal income tax, selfemployment tax (Social Security and Medicare), and, sometimes, the alternative minimum tax. These payments are mainly for those whose income isn’t automatically withheld, like self-employed people, investors, and retirees. Underpayment can result in a penalty, even if you get a refund later.